Euro faces political, fiscal reckoning as it hovers near 17-month low

The euro hit a 17-month low against the US dollar on Tuesday, slipping to US$1.1220 after falling to its lowest level since May 2025 the previous day. The decline was fueled by political uncertainty and fiscal challenges across the euro zone, exacerbating concerns about high debt levels and gridlock in France's upcoming snap election. The common currency's weakness also reflects escalating borrowing costs in France, which are spilling over to the broader euro area.

Strategists are pessimistic about the euro's future, predicting it could drop below US$1.10. To see the euro rebound, analysts believe it would require a significant drop in oil prices, a sharp increase in expectations for European monetary policy tightening, or a serious effort to rein in the budget deficit. However, the latter seems unlikely in the near term.

In contrast, the US dollar rallied to multi-decade highs, supported by elevated Treasury yields. The dollar index climbed to an 18-month peak, while the British pound weakened slightly to 84.83 pence. Meanwhile, the Australian and New Zealand dollars edged down by 0.07%.