Euro nears 17-month low amid political and fiscal turmoil

The euro hovered near a 17-month low on Tuesday, pressured by political uncertainty and fiscal concerns across the eurozone. The common currency dipped slightly to $1.1220 in early Asian trading, extending its 1.2% drop from the previous week. It also lost more than 1% against the British pound last week, falling to 84.83 pence.

The euro's decline stems from worries about high debt levels and political gridlock in France, compounded by an upcoming snap election in Spain. Rising French borrowing costs are raising alarms for policymakers, as the weakness spreads across the broader euro area.

Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro's prospects. He predicted it could fall below $1.10, citing limited factors that could reverse the trend. Capurso noted that a significant drop in oil prices, a shift in European monetary policy expectations, or fiscal discipline in the eurozone could help, but he sees little chance of the latter happening soon.

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