Euro Hits Lowest Level Against Dollar Since 2025 on Eurozone Instability

The euro hit its lowest level against the dollar since May 2025, driven by growing concerns over political instability and public finance issues in the eurozone. In Asian trading, the single currency dropped 0.8% to $1.1161 per euro, with hedge funds leading the sell-off. Reports of potential early elections in Spain further fueled investor anxiety, exacerbating pressure on the French bond market, where the spread between French and German bonds reached its highest since 2011.

Currency dealers noted that short-term strategy funds in Asia sold euros for dollars in the spot market, triggering additional selling linked to options. Homin Lee, senior macro strategist at Lombard Odier Singapore, highlighted investor unease about France's political instability and fiscal erosion ahead of the 2027 elections. Surveys suggest far-right candidate Marine Le Pen and far-left candidate Jean-Luc Mélenchon could advance to the second round.

Analysts at JPMorgan, including Mira Chandan, warned that the euro has yet to fully reflect the pressure on French bonds, leaving it vulnerable to further declines, particularly against the Swiss franc and yen. The euro lost 0.5% against the Swiss franc, marking its third consecutive session of decline, and fell 0.26% against the British pound to 0.850 pounds per euro.

The euro's decline was also bolstered by a stronger dollar, supported by expectations of three more interest rate hikes by the Federal Reserve by July to curb inflation. Fiona Lim, senior currency strategist at Malayan Banking Berhad, noted that the dollar remained resilient despite a weaker jobs report, as market focus shifted to eurozone fiscal concerns and credit default swaps.