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

The euro faced a political and fiscal reckoning on Tuesday, as it hovered near a 17-month low. The currency slid to US$1.1220 in early Asian trade, following its lowest point since May 2025 in the previous session. This decline came amidst concerns over high debt levels and political gridlock in France, exacerbated by an upcoming snap election in Spain.

Analysts are pessimistic about the euro's prospects, predicting it could fall below US$1.10. A weaker euro is also raising alarm bells for policymakers due to increasing borrowing costs in France that have started to impact the broader euro area. The dollar, on the other hand, extended its rally, bolstered by US Treasury yields reaching multi-decade highs.

This strength in the greenback was supported by the anticipation of further tightening of monetary policy by the Federal Reserve, despite weaker-than-expected US jobs data signaling a potential slowdown in inflation.