Euro Hits 17-Month Low as French Debt Fears Grow

The euro fell to its lowest level in 17 months against the dollar, dropping below $1.12 in early trading on Monday before slightly recovering. This decline marks a 1.2% drop for the month, accelerating a larger slide from a peak of $1.20 in January. Investors cited concerns over France’s rising debt costs and political instability as key drivers of the sell-off.

The French government is struggling to control its public finances ahead of next year’s presidential election. France’s CAC 40 index dropped by 1% on Monday, contrasting with gains elsewhere in Europe. Spain’s announcement of a snap election after rightwing parties blocked housing legislation added to eurozone uncertainty.

France’s 10-year government bond yields hit a 20-year high last week before easing, widening the gap with Germany’s borrowing costs to its widest level since 2012. Analysts fear political pressures could derail fiscal consolidation, pushing up borrowing costs and increasing France’s debt pile. The European Central Bank faces additional challenges from inflationary pressures due to the Middle East conflict.

Currency strategist Roberto Mialich warned that further declines in the euro are possible, potentially testing $1.10 in the near term. Growing political tensions in France and Spain, along with fears of contagion in the European sovereign debt market, are contributing to the euro’s decline.