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

The euro faced a political and fiscal reckoning on Tuesday, sliding to a 17-month low as concerns over high debt levels and political gridlock in France mounted. The common currency dipped slightly to $1.1220 in the early Asian session, having fallen to its lowest since May 2025 in the previous session, extending a 1.2% decline from the prior week. The euro's struggles were compounded by upcoming elections in Spain, adding to the euro zone's headwinds.

Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro's prospects, predicting it could dip below $1.10. He noted that a strong dollar, driven by high US Treasury yields, and expectations for European monetary policy tightening were necessary for the euro to rise. However, he doubted that the euro would improve anytime soon due to ongoing challenges in curbing budget deficits.

Meanwhile, the dollar extended its rally, buoyed by elevated US Treasury yields that hit multi-decade highs. Against the yen, the dollar rose to 157.92, while the British pound slipped 0.02% to $1.3222. The dollar index reached an 18-month high in the previous session, rallying despite reduced expectations for a Federal Reserve rate hike this month due to weaker-than-expected US jobs data.

Analysts at Barclays emphasized that while inflation revisions and data reduced the urgency for tighter policy, cost pressures still indicated a high likelihood of sustained inflation above 2% in the coming year.