Euro Hits 17-Month Low on French Fiscal and Political Worries

The euro tumbled to a 17-month low on Monday, dropping as low as $1.1161 in Asian trading. This decline, the weakest level since May 2025, followed four consecutive weeks of losses. The single currency's weakness was driven by growing concerns over France's fiscal stability and political uncertainty ahead of next year's election.

Analysts warned against expecting a swift recovery. Chris Weston, head of research at Pepperstone, cautioned traders not to 'stand in front of the train,' suggesting the euro's decline reflects broader fiscal issues and potential contagion risks. Brent Donnelly, president of foreign exchange trading at Spectra Markets, noted that the political and fiscal challenges in France were already escalating ahead of the April 2027 elections.

The euro's drop, along with a bond market rout, raised fears that France's troubles could spread across the eurozone, echoing the debt crisis from over a decade ago. Some analysts, however, believed it was too early to assess the risk of contagion. Ninghui Liu, head of investment strategy at State Street Investment Management, described the situation as a 'country story' rather than a broader euro crisis, though he acknowledged the growing instability in France's fiscal position.

Meanwhile, the dollar strengthened amid global debt selloffs and safe-haven flows. The US 10-year Treasury yield fell slightly to 5.260% after hitting a 24-year high last week. Traders now see a 78% chance of the Federal Reserve keeping rates steady in October, though they still expect hikes in December and early 2027. The dollar index rose 0.47% to 102.37, benefiting from the appeal of US assets and the broader selloff in global debt.