Euro Weakness Deepens as EU Economic and Political Crises Worsen

The bond vigilantes have pushed French government debt yields higher than those of any other country in recent months. France’s political dysfunction, with Marine Le Pen controlling Parliament and President Macron struggling to pass a budget, has led to a 5.4% budget deficit, the highest in the EU. The country’s shrinking population and challenges with immigrant assimilation further threaten its government pensions.

The euro has hit a 17-month low against the U.S. dollar, as economic struggles spread across the EU. Spain, once a bright spot due to immigration-driven population growth, saw a 0.9% drop in retail sales in July, signaling trouble. Germany fared worse, with a 3.4% plunge in retail sales, contributing to the rise of the AfD Party and the potential ousting of Chancellor Merz.

The U.S. dollar’s strength is deflationary, lowering commodity and import costs. The British pound is leading the European currency collapse, as the Bank of England lagged behind the Federal Reserve and European Central Bank in raising interest rates. British Prime Minister Andy Burnham has even suggested rejoining the EU amid persistent budget woes.

The U.S. remains a global growth engine, with FactSet forecasting a 29.5% rise in S&P 500 earnings for the third quarter. This could drive the index’s earnings up over 33%, making the upcoming earnings season highly anticipated.