Euro Hits 17-Month Low Amid Spanish Election and French Fiscal Concerns
The euro fell to its lowest level in 17 months, driven by political uncertainty in Spain and France. Reports suggest Spain's government may call an early election, adding to concerns about France's budget and instability. The euro dipped as much as 0.8% to $1.1161 before recovering slightly to $1.1179, marking a 4.86% decline for the year.
The euro's decline was exacerbated by hedge funds selling euros for dollars in Asia, triggering further drops as option barriers were breached. Meanwhile, the gap between French and German borrowing costs widened to 152 basis points, the highest since 2011, signaling investor unease over France's fiscal stability ahead of 2027 elections.
Beyond politics, rising interest rates are weighing on European markets. The European Central Bank raised its deposit rate to 2.50% in September, with further hikes expected. This has slowed share sales, which dropped about 20% year-on-year in the third quarter after a strong first half. The outlook for initial public offerings remains uncertain, as recent listings have lost 17% on average.
The Stoxx Europe 600 index, which set records over the summer, closed Friday at 631.35, about 5% below its August high. Analysts note that while market indices appear stable, underlying concerns about rates, inflation, and geopolitics persist. The upcoming earnings season will reveal whether corporate profits can counteract higher borrowing costs.