Euro Pressured by Political Uncertainty and Rising Borrowing Costs
The euro is under pressure as EUR/USD dropped to near 1.1160, its lowest level since May 2025, before bouncing slightly. The near-term outlook remains bearish for the single currency, driven by political and fiscal concerns rather than economic data. Spain's early election and France's rising borrowing costs and political divisions are major contributors to this uncertainty. Investors are demanding a higher risk premium for holding French debt due to these fiscal challenges.
The euro's weakness is not just against the dollar, as declines in EUR/CHF and EUR/GBP indicate broader selling pressure. The ECB officials speaking this week must maintain a hawkish tone to anchor inflation expectations, while also monitoring the deteriorating French bond markets. Any policy mistakes could lead to a further drop in the euro's value.
The dollar remains relatively well supported, with markets still expecting a rate increase from the Federal Reserve, possibly in December. Wednesday's FOMC minutes could provide insight into the Fed's stance on further rate hikes. Technically, EUR/USD is testing support levels, with key resistances around 1.1325 to 1.1350. Below current support, the next major levels to watch are 1.1200, 1.1100, and ultimately 1.1000 if conditions do not improve.