Euro Hits 17-Month Low as Political Turmoil and Rates Weigh on Markets

The euro dropped to its lowest level in 17 months against the U.S. dollar, driven by political turmoil in Spain and France, as well as rising interest rates across Europe. The currency fell as much as 0.8% during Asian trading, reaching $1.1161 before slightly recovering to $1.1179. This decline marks a 4.86% decrease for the year.

Reports suggest that Spain’s Prime Minister Pedro Sánchez may call for an early election following a significant parliamentary defeat last week. This political uncertainty, combined with France’s shaky government and strained public finances, has heightened investor concerns. The gap between French and German borrowing costs has widened to 152 basis points, the largest since 2011, signaling growing unease about France’s fiscal stability ahead of the 2027 elections.

Beyond political factors, higher borrowing costs across Europe are straining the region’s markets. The European Central Bank (ECB) raised its deposit rate to 2.50% in September, with further increases potentially dampening share sales. Third-quarter volume for European share sales dropped roughly 20% from a year earlier, following a strong first half where sales reached $89 billion, up 36% year-on-year.

Despite these challenges, European share prices have remained resilient, with the Stoxx Europe 600 index setting records over the summer. However, experts warn that this stability masks underlying investor concerns about rates, inflation, and geopolitical risks. The upcoming earnings season will be crucial in determining whether corporate profits can continue to offset these pressures.