Euro hits 17-month low on political and fiscal worries

The euro faced renewed pressure on Tuesday, sinking near a 17-month low as political instability and fiscal concerns weighed heavily on the currency. The euro dipped to $1.1219 in Asian trading, extending its decline from last week by 1.2%. Against the British pound, it fell to 84.87 pence, after losing over 1% in the previous week.

Market worries stem from high debt levels in France and political gridlock, compounded by an upcoming snap election in Spain. Rising French borrowing costs are raising alarms for policymakers across the eurozone. Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism, predicting the euro could drop below $1.10. He cited the need for a significant drop in oil prices or a shift in European monetary policy to reverse the trend.

The dollar continued its rally, supported by elevated US Treasury yields, which reached multi-decade highs overnight. Sterling slipped 0.06% to $1.3216, while the dollar climbed 0.18% against the yen to 158.16. The Bank of Japan may soon signal that inflation has hit its 2% target, hinting at further rate hikes. The dollar index rose to 102.17, nearing an 18-month high.

Despite weaker-than-expected US jobs data reducing expectations for a Federal Reserve rate hike this month, investors still anticipate further tightening. Analysts at Barclays noted that persistent cost pressures suggest inflation may remain high into next year. The Australian dollar held steady at $0.6971, while the New Zealand dollar dipped 0.05% to $0.5597.