Euro Near 17-Month Low Amid Political and Fiscal Uncertainty

The euro faced continued pressure on Tuesday, hovering near a 17-month low as political instability and fiscal concerns across the eurozone weighed heavily on the currency. The euro dipped slightly to $1.1220 in early Asian trading, extending its 1.2% decline from the previous week. It also lost more than 1% against the British pound last week, reflecting broader market unease.

Concerns over high debt levels in France and political gridlock, combined with an upcoming snap election in Spain, have intensified selling pressure on the euro. Rising French borrowing costs have raised alarms among policymakers, signaling potential risks for the broader euro area. Strategist Joseph Capurso of Commonwealth Bank of Australia expressed pessimism, predicting the euro could drop below $1.10. He noted that significant improvements in oil prices, European monetary policy expectations, or fiscal discipline would be needed to reverse the trend.

The dollar, meanwhile, extended its rally, supported by elevated US Treasury yields, which reached multi-decade highs. The dollar index climbed to 102.16, marking an 18-month high in the previous session. Despite weaker-than-expected US jobs data reducing expectations of a Federal Reserve rate hike this month, investors still anticipate further policy tightening due to persistent inflation concerns.

Elsewhere, the Australian dollar and New Zealand dollar each fell 0.07%, reflecting broader risk-off sentiment. Analysts at Barclays noted that while recent data reduced the urgency for tightening, cost pressures continued to fuel doubts about sustaining 2% inflation, keeping the dollar strong.