FRANKFURT: The euro fell to its weakest level since May 2025 as investor concerns over political and fiscal risks in the region intensified.
The shared currency fell as much as 0.8% to touch 1.1161 per US dollar in Asian trade.
Fast-money funds in Asia sold the euro for dollars in spot trading, according to traders who asked not to be named as they are not authorised to speak publicly.
That pushed prices past barrier levels, triggering options-related selling that compounded the fall, they said.
Reports that Spanish government officials are preparing for an early election added to concerns rocking France’s bond market.
Last Friday, the premium investors charge to hold French bonds over equivalent bunds hit 152 basis points, the first time that’s happened since 2011.
“Bond and currency markets are clearly signalling investor discomfort about the rising instability of the French government and erosion in the country’s fiscal anchor ahead of the elections in 2027,” said Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd.
Investors are increasingly worried about France’s political backdrop, where opposition parties are showing little appetite for compromise with President Emmanuel Macron’s outgoing administration ahead of next year’s vote.
Far-right candidate Marine Le Pen and far-left rival Jean-Luc Mélenchon are expected to advance to the second-round runoff, according to a poll released last week.
Last Friday, strategists at JPMorgan, including Meera Chandan, noted that the euro was yet to price in moves in the French bond market and suggested it was vulnerable to further selling, particularly against the Swiss franc and yen.
“The euro doesn’t yet reflect the widening in OATs and associated tail risks,” they wrote. “Euro-Swiss franc is too high and can continue to adjust lower.” The euro fell for a third session against its Swiss counterpart yesterday, down some 0.5%.
The euro is also under pressure from a strengthening dollar, which is being supported by expectations that the Federal Reserve will need to raise interest rates three more times by June to tame inflation.
The Bloomberg Dollar Spot Index rose to the highest level since late June yesterday. — Bloomberg
