Euro Hits 17-Month Low Amid Political Risks in Europe

The euro dropped to its lowest level in 17 months, hitting 1.1161 per US dollar in Asian trade as political and fiscal risks in Europe grew. The decline was driven by fast-money funds selling the euro for dollars, which triggered further options-related selling. Reports that Spanish officials are preparing for an early election worsened investor concerns, especially after France’s bond market showed significant volatility.

The premium for holding French bonds over German bunds reached 152 basis points last Friday, a level not seen since 2011. Homin Lee, a senior macro strategist at Lombard Odier Singapore Ltd., noted that bond and currency markets are signaling discomfort over France’s political instability ahead of the 2027 elections. Polls suggest far-right candidate Marine Le Pen and far-left rival Jean-Luc Mélenchon are likely to advance to the second-round runoff.

Strategists at JPMorgan, including Meera Chandan, warned that the euro has not yet fully priced in the risks from the French bond market, making it vulnerable to further declines, particularly against the Swiss franc and yen. The euro fell for a third session against the Swiss franc, dropping 0.5%. Additionally, a strengthening dollar, supported by expectations of further Federal Reserve interest rate hikes, added pressure on the euro.