Euro Near 17-Month Low Amid Political and Fiscal Uncertainty

The euro struggled near a 17-month low on Tuesday, weighed down by political uncertainty and fiscal concerns across the euro zone. The common currency ticked slightly lower to US$1.1220 in early Asian trading, extending a 1.2% fall from the previous week. The euro also lost more than 1% against the British pound last week, reflecting broader concerns about high debt levels and political gridlock in France. An upcoming snap election in Spain is adding to the headwinds for the euro.

The sliding euro is raising alarms for policymakers, especially with surging French borrowing costs that are spilling over into the broader euro area. Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro's prospects. 'We think it's going to go down to under US$1.10,' he said. Capurso noted that the euro would need significant factors, such as a big decrease in oil prices or a shift in European monetary policy, to recover.

Meanwhile, the dollar extended its rally, supported by elevated US Treasury yields, which reached multi-decade highs. The dollar index firmed at 102.16, having hit an 18-month high in the previous session. The greenback's strength persists despite reduced expectations for a Federal Reserve rate hike this month, as investors anticipate further policy tightening due to persistent inflation pressures.

In other currency movements, the Australian dollar fell 0.07% to US$0.6967, while the New Zealand dollar eased 0.07% to US$0.5596. Data on Monday showed that US services-sector activity slowed in September, with strong domestic demand stretching supply chains and raising input costs, suggesting inflation may remain high into next year.