Euro Struggles Near 17-Month Low Amid Political and Fiscal Uncertainty
The euro hovered near its 17-month low on Tuesday, weighed down by political uncertainty and fiscal concerns in the eurozone. The common currency dipped slightly to $1.1220 in early Asian trading, extending its 1.2% decline from the previous week. It also lost over 1% against the British pound last week, reaching 84.83 pence.
The euro's weakness stems from high debt levels and political gridlock in France, compounded by an upcoming snap election in Spain. Rising French borrowing costs have begun affecting the broader euro area, signaling growing economic challenges.
Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro's outlook. He predicted it could fall below $1.10, citing factors like elevated oil prices and a lack of fiscal discipline in the eurozone. Capurso noted that a significant drop in oil prices or a shift in monetary policy expectations could provide some relief, but he sees little chance of fiscal tightening soon.
Meanwhile, the US dollar continued its rally, supported by high US Treasury yields, which hit multi-decade highs overnight. The dollar rose to 157.92 against the yen and saw a slight dip in sterling to $1.3222. The dollar index reached 102.16, having hit an 18-month high earlier.
The dollar's strength persisted despite reduced expectations for a Federal Reserve rate hike this month, following weaker-than-expected US jobs data. Analysts at Barclays suggested that while inflation revisions ease the urgency for tightening, persistent cost pressures indicate inflation may remain high into next year.
Other currencies also felt the pressure, with the Australian dollar and the New Zealand dollar each falling 0.07% to $0.6967 and $0.5596, respectively.