Euro Slumps Near 17-Month Low Amid Eurozone Uncertainty

The euro struggled near a 17-month low on Tuesday, weighed down by political uncertainty and fiscal concerns across the euro zone. The dollar, meanwhile, extended its rally as US Treasury yields climbed higher. The euro dipped to $1.1220 in early Asian trading, after hitting its lowest level since May 2022 in the previous session. It also lost more than 1% against the British pound last week.

The common currency faces pressure from high debt levels and political gridlock in France, along with an upcoming snap election in Spain. Rising French borrowing costs are raising alarms for policymakers across the euro area. Joseph Capurso, a strategist at Commonwealth Bank of Australia, predicted the euro could fall below $1.10, citing weak oil prices, lack of monetary policy tightening, and budget deficit issues.

The dollar continued its upward trend, supported by elevated US Treasury yields, which reached multi-decade highs overnight. Against the yen, the dollar rose slightly to 157.92, while sterling slipped to $1.3222. The dollar index firmed at 102.16, after hitting an 18-month high in the previous session.

Despite weaker-than-expected US jobs data, the dollar's strength persisted as investors anticipated further Federal Reserve rate hikes. Analysts at Barclays noted that cost pressures could keep inflation high into next year. Meanwhile, the Australian and New Zealand dollars both eased slightly against the US dollar.