Euro Hits 17-Month Low Amid Political and Fiscal Uncertainty

The euro continued its decline on Tuesday, dropping to a 17-month low as political uncertainty and fiscal concerns across the eurozone weighed heavily on the currency. The euro fell to $1.1219 in Asian trading, extending its 1.2% drop from the previous week. It also lost more than 1% against the British pound over the past week, reaching 84.87 pence.

Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro's prospects, predicting it could fall below $1.10. He noted that for the euro to rise, significant decreases in oil prices, aggressive European monetary policy tightening, or substantial efforts to reduce budget deficits would be necessary, though he deemed the latter unlikely in the near term.

Meanwhile, the U.S. dollar continued its strong rally, supported by elevated U.S. Treasury yields, which hit multi-decade highs overnight. The dollar index reached an 18-month high, with the greenback strengthening against the yen to 158.16. The Bank of Japan may signal this month that underlying inflation has hit its 2% target, suggesting further interest rate hikes in the coming months.

Despite weaker-than-expected U.S. jobs data, investors still anticipate further policy tightening by the Federal Reserve. Analysts at Barclays noted that persistent cost pressures raise doubts about sustaining 2% inflation. Data on Monday showed that U.S. services-sector activity slowed in September, with supply chain strains and rising input prices indicating that inflation may remain high into next year.