Americans love to grumble about how a dollar just doesn’t go as far as it used to. Lately, fashion brands feel their pain.
This year, the US dollar has weakened to multi-year lows against the euro, British pound, Swiss franc and many other currencies, thanks to a cocktail of geopolitical uncertainty, the Federal Reserve’s monetary policy, Trumpian trade tensions and diverging central bank moves among the world’s economic powers. That’s created challenges for the top and bottom lines of fashion brands with significant costs in one currency and sales in another.
But the weaker dollar is especially relevant in luxury, where most labels make their goods in Europe but count the US as their biggest market. When the euro strengthens against the dollar, those goods become more expensive for American shoppers, and sales in the US are worth less when converted into euros or francs.
LVMH, Prada and Kering reported shifting exchange rates lowered revenue by five percent in the third quarter of 2025. Hermès’ currency impact was even higher at 6.5 percent of revenue, or €254 million ($294 million). Hugo Boss said unfavourable currency moves were one reason it now expects annual sales to come in at the low end of its forecast.
Hugo Boss isn’t the only company struggling to predict future sales and profits. Currency fluctuations make forecasting more difficult. It’s also harder to plan out pricing strategies, anticipate costs and allocate inventory when volatile currencies affect buying power in major markets or manufacturing costs in key supply hubs. Tourism – and travel retail – are often ground zero for currency effects: last year, Japan was a popular holiday destination for travellers around the world after a steep drop in the yen. Europe, meanwhile, has seen fewer tourists as the euro has risen.
These challenges come at the same time as many brands are facing an already tempestuous global economy, and mounting concerns about consumer sentiment. Luxury labels are still clawing themselves out of a spending slump. Meanwhile, President Donald Trump’s tariffs are reshaping supply chains and cost structures.
“[Currency fluctuations] are another term being added to the list of uncertainties,” said Joanna Rangarajan, retail managing director at consulting firm Alvarez & Marsal. “It’s an operational variable that must be addressed head on.”
Weak Dollar Winners and Losers
Course-correcting for a weak dollar is a challenge for the many businesses that are relying on US shoppers right now.
For some brands, the weak dollar is welcome news. Ralph Lauren sources most of its clothes in Asia, and its fastest growing markets are also in the region, along with Europe. It said currency effects raised revenue by 2.5 percentage points in the quarter ending in September, and improved its margins by just over 1 percentage point. Under Armour also reported that currency gains offset some of the margin lost to tariffs.
“[US] companies that have a decent amount of business in Europe will see a tailwind,” said Jessica Ramírez co-founder of consultancy The Consumer Collective.
European luxury labels have the opposite problem: their growth was concentrated in the US, while their products are manufactured closer to home. Hermès, for example, makes over 70 percent of its products in France, it said in a general meeting with shareholders in April. HSBC estimates around 50 percent of LVMH costs are in Europe.
Compensating for Currency Effects
Big, global companies reduce their currency exposure through hedging, where they use futures and options contracts to lock in exchange rates at a fixed point. Both LVMH and Kering said their use of these financial instruments would reduce their negative foreign-exchange impact.
Hedging “postpones the pain or the gain,” said Erwan Rambourg, managing director at HSBC.
Brands rarely shake up their sourcing mix in response to short-term currency fluctuations. By the time they move production from one country to another, the foreign-exchange market is likely to have shifted in a new direction.
They’re more likely to change prices in stores instead, such as by raising prices in a country where the currency has depreciated. Brands typically do this only in response to particularly dramatic, or long-lived currency moves, as frequent changes can alienate customers.
“It’s a subtle balance, a brand can define prices to create a certain buffer among geographies, but it cannot overreact or always try to offset this volatility,” said Mario Ortelli, managing partner at luxury advisory Ortelli&Co.
Brands today are more cautious in pulling the pricing lever, particularly when it comes to the important, and still relatively resilient American shopper. There are worries their endurance could be tested, especially in the months ahead as tariff-driven price hikes set in — consumer sentiment in the US is nearing record lows, according to data from the University of Michigan, and at the mass market end, consumers are tightening their purse strings. On the luxury side, many brands have limited pricing power as they look to reinvigorate demand after years of opportunistic price hikes. They risk further alienating consumers, or giving new momentum to resellers who take advantage of pricing gaps between regions.
Consumers are also generally more aware of prices across markets and “want to have fairness because they have increased visibility,” said Oliver Chen, analyst at TD Cowen.
Tourism is seeing an impact. Many companies — such as Kering, LVMH and Cartier-owner Richemont — saw a boom in mostly Chinese tourist spending in Japan last year, when the yen fell to its lowest point in more than 30 years. Now, they’re noting slowdowns in the region as the yen strengthens. This summer, LVMH and Moncler were among those who said tourist spending in Europe declined from last year.
This bout of unpredictable tourism ebbs-and-flows is helping drive more luxury brands to focus efforts closer to home, on local relationships and clienteling in key markets like China and the US, rather than more opportunistic, impulse buys from shoppers abroad (or, by shoppers abroad for consumers at home through daigou).
“It’s making the world of luxury a lot more local, which is actually healthy because you’re focusing on the cake, not just the cherry on the cake,” Rambourg said.
Predicting where the dollar will head next is dangerous territory for foreign-exchange traders, let alone fashion brands, which is why most with significant exposure opt for hedging strategies that neutralise currency effects, rather than trying to take advantage of them.
The dollar has begun a slow recovery from lows hit against many currencies over the summer. That might continue, particularly if the US economy proves more resilient than expected or central banks in other countries follow the Fed’s path and cut interest rates, making US assets more attractive by comparison. Just as easily, Trump could announce unexpected new economic policies that send the greenback spiraling lower again.
“It’s volatile. Any way you put it, it’s going to stay that way going into the foreseeable future,” said Ramirez.
