Euro Falls on Energy Shocks and Political Risks
The euro has been under pressure in recent weeks due to a combination of factors, including energy shocks and rising political risks. According to Reuters, the single currency has fallen about 2% in September, touching two-month lows just below $1.14. It was last trading around $1.137.
One major concern is the impact of high energy prices on the euro zone's economic resilience. European gas prices have surged above 80 euros per megawatt-hour this month, their highest level since late 2022, due to the conflict in Iran disrupting liquefied natural gas shipments through the Strait of Hormuz.
Analysts expect European gas prices to remain elevated, forecasting a range of roughly 85-100 euros per megawatt-hour. This has raised concerns about whether the region's economy can continue to perform well despite the energy price shock. The situation is further complicated by political uncertainty in key countries such as Germany and France.
The growing gap between French and German government borrowing costs highlights investor concerns, with the premium investors demand to hold 10-year French government bonds over triple-A-rated German debt rising above 110 basis points. Bank of America strategists estimate that every additional 10-basis-point widening in the spread could be associated with a 0.4% decline in the euro against the dollar.