The Long-Term Implications of the U.S.-EU Trade Deal for European Exporters and Currency Stability

The U.S.-EU trade deal of July 2025, inked at Trump's Turnberry golf resort, has reshaped transatlantic economic dynamics. While averting a full-scale trade war, the agreement introduces structural risks for the eurozone, particularly in currency stability and sectoral competitiveness. This article examines these risks and identifies undervalued sectors that could thrive in the new trade landscape.

Structural Risks: Currency Volatility and Sectoral Vulnerabilities

The deal's most immediate impact has been a sharp depreciation of the euro against the U.S. dollar. Since the agreement's announcement, the euro has fallen to multi-year lows, driven by reduced trade tensions and the Federal Reserve's aggressive rate hikes. While a weaker euro boosts export competitiveness, it simultaneously inflates import costs, exacerbating inflationary pressures in a region already grappling with energy insecurity.

Key Risks:
1. Automotive and Industrial Sectors: The 15% tariff on EU exports to the U.S. offers temporary relief but leaves the door open for future tariffs on strategic goods like semiconductors and pharmaceuticals. German automakers, such as Volkswagen and BMW, face margin erosion if U.S. policy shifts again.
2. Luxury Goods Industry: A stronger dollar and weaker euro threaten U.S. demand for European luxury brands like LVMH and Kering, which rely on cross-border consumer spending.
3. Renewable Energy and Healthcare: These sectors, while insulated by EU green policies, remain vulnerable to supply chain disruptions and potential U.S. tariffs on critical inputs like raw materials and machinery.

Undervalued Sectors with Adaptation Potential

Despite the risks, the trade deal has created opportunities for undervalued sectors to adapt and thrive. European small-cap stocks with strong fundamentals and insider confidence are emerging as compelling investments.

1. Industrial Thread Manufacturing
Coats Group (COATS.L), a global leader in industrial thread, has shown resilience amid trade uncertainties. With forecasted earnings growth of 27.56% annually and insider buying activity, the company benefits from its low-cost production footprint and diversified client base.

2. Biochemicals
Borregaard (BORGA.OL), a Norwegian biochemicals firm, has leveraged its expertise in sustainable wood-based products to secure long-term contracts. Its Q2 2025 sales of NOK 2,045 million and insider share purchases signal optimism about its ability to navigate trade volatility.

3. Real Estate and Infrastructure
Swedish real estate company Diös Fastigheter (DIOS.ST) is expanding its portfolio in educational and commercial properties, capitalizing on EU infrastructure investments. Its strategic focus on high-demand sectors like logistics and green energy positions it to benefit from the deal's energy and investment commitments.

Strategic Investment Recommendations

• Diversify Exposure to Small-Cap Sectors: Investors should prioritize companies with strong balance sheets and insider confidence, such as Coats Group and Borregaard, which are well-positioned to adapt to trade policy shifts.
• Hedge Currency Risks: Given the euro's volatility, consider hedging strategies for cross-border investments or allocate to dollar-denominated assets to offset currency depreciation.
• Monitor Sector-Specific Policies: Stay attuned to U.S. tariff announcements and EU regulatory changes, particularly in pharmaceuticals and energy, where policy shifts could unlock or constrain growth.

Conclusion

The U.S.-EU trade deal represents a defensive victory for the eurozone, but its long-term success hinges on navigating structural risks and capitalizing on adaptive sectors. While currency volatility and sectoral vulnerabilities persist, undervalued small-cap stocks in manufacturing, biochemicals, and real estate offer compelling opportunities. Investors who balance caution with strategic exposure to these sectors may find themselves well-positioned for a post-deal economy.