Euro Dips to 17-Month Low Amid European Political Turmoil

The euro dropped to a 17-month low near $1.1160 today as political turmoil in Europe weighed heavily on the currency. Investors are wary of the upcoming presidential contest in France, where the far-right and far-left parties have proposed controversial policies like lowering the pension age and forgiving government debt. Meanwhile, Spain’s Prime Minister Sanchez called for a snap election after losing a key vote on housing reform, adding to the political instability. The euro briefly stabilized around $1.1220 but remains under pressure.

In the U.S., the likelihood of a Federal Reserve rate hike later this month has plummeted from 70% to less than 20%, following softer economic data and forward guidance from Fed leaders. The early forecast for the September CPI, due October 14, suggests a rise in both the headline and core year-over-year rates. This week’s data may not significantly alter market expectations, but the CPI report next month could be a game-changer.

The U.S. dollar showed mixed performance against other major currencies. The yen saw some recovery after U.S. 10-year yields rebounded, while the Canadian dollar struggled to gain momentum. The Australian dollar also faced challenges, trading within its pre-weekend range. In emerging markets, the Mexican peso remained volatile, and the offshore yuan showed slight firmness. The Indian rupee traded quietly, with the central bank expected to raise the repo rate to 5.50% this week.

Equities in North America and Europe ended last week on a positive note, while Asia Pacific stocks rebounded today. Benchmark 10-year yields in Europe and North America saw volatility, with the U.S. yield up four basis points. Gold and silver posted outside days, with gold trading between $4125 and $4170. Oil prices stabilized after a brief dip, consolidating between $89.30 and $91.90. Key data releases this week include the U.S. ISM September services index and Canada’s September PMI.