Euro Plummets to 17-Month Low Amid European Political and Economic Turmoil

The euro has dropped to its weakest point against the U.S. dollar in 17 months, driven by concerns over political instability in key European economies and a strengthening dollar.

On October 5, the euro fell 0.6% against the greenback, reaching its lowest level since May 19, 2025. Rising inflation, higher interest rates, and increasing government borrowing costs have contributed to the euro's decline.

Investors are particularly worried about weak economic growth and political uncertainty in Spain and France. Spanish Prime Minister Pedro Sánchez has called a snap election for November amid growing protests over the country’s housing crisis. Meanwhile, France is facing a sovereign crisis as rising debt becomes more expensive to service due to higher interest rates.

Barclays analysts noted that France’s efforts to reduce its public deficit from 5.4% to 5% of GDP next year may not succeed. They warned that fiscal and political developments in France are clouding the outlook for the euro area.

Inflation in Europe hit an annualized rate of 3.8% in September, the highest in three years, largely due to an 18.8% year-over-year surge in energy prices. The European Central Bank (ECB) has raised interest rates twice this year, each time by 25 basis points, and is expected to do so again at its next meeting on October 29.

The U.S. Federal Reserve also raised its key lending rate by 25 basis points in September, its first increase in three years, which has strengthened the dollar against the euro.