Euro hits lowest level since 2025 amid eurozone instability fears

The euro hit its lowest level against the dollar since May 2025, driven by rising concerns over political instability and fiscal health in the eurozone. On Monday, the single currency dropped 0.8% to $1.1161 per euro in Asian trading, with hedge funds leading the sell-off.

Investor anxiety intensified following reports that Spanish officials are preparing for early elections. This added pressure to the French bond market, where the spread between French and German bonds reached its highest since 2011 on Friday. Currency dealers in Asia noted that short-term funds sold euros for dollars in the spot market, triggering further declines linked to options trading.

Homin Lee, a senior macro strategist at Lombard Odier Singapore, highlighted investor unease over France's growing political instability and eroding fiscal stability 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, cautioned 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 fell 0.5% against the Swiss franc and 0.26% against the British pound. The dollar's strength, fueled by expectations of more Federal Reserve rate hikes, also contributed to the euro's decline.