Euro hits 17-month low amid debt and political crisis concerns in Europe
Pressures in the French bond market and political gridlock have negatively impacted the euro, dragging the common currency down to 17-month lows.
Concerns that France's high public debt and political developments could spread across the Eurozone have led to sharp declines in the euro, with the currency stabilizing near 17-month lows.
Euro at 17-Month Low
Following a sharp decline on Monday driven by concerns that the pressure in the French bond market could spread across the Eurozone, the euro stabilized just above its 17-month low on Tuesday. The common currency traded at $1.12, down by less than 0.1%, after dropping as low as $1.116 in the previous session—its lowest level since May 2025.
France's Public Debt and Political Pressure
At the center of the pressure on the euro are France's high public debt and political gridlock. Sharp sell-offs in French bonds drove up borrowing costs, increasing concerns that this movement could spill over to other Eurozone countries. Spain's decision to hold early elections was another factor that heightened political pressure on the common currency.
Market Expectations and Expert Views
Joseph Capurso, a strategist at the Commonwealth Bank of Australia, stated that their outlook for the euro is negative, noting that the parity could fall below $1.10. Capurso stated that for the euro to regain strength, there needs to be a sharp drop in oil prices or France must begin to bring its budget deficit under control.
Strong Course of the Dollar in Global Markets
Meanwhile, the dollar maintained its strong trajectory as high U.S. Treasury yields supported the currency, with the dollar index trading at 102.16. The index had reached an 18-month high of 102.53 in the previous session. ING FX Strategist Francesco Pesole noted that the dollar started the week strongly.
Inflation and Fed Expectations in the U.S.
In the U.S., service sector activity slowed in September while strong domestic demand increased pressure on supply chains. The rise in prices paid by companies for inputs reinforced expectations that inflation could remain high next year. According to the CME FedWatch Tool, the probability of a rate hike in October stands at 22%.
Global Currencies and Central Banks
The dollar rose 0.2% against the Japanese yen to 158.21. The pound held steady around $1.323, while the Australian dollar fell 0.1% to $0.696. The Bank of Japan is expected to signal this month that core inflation has reached its target of approximately 2%.