The euro fell to $1.1220 in early Asian trading on Tuesday, marking its lowest value since May 2025. In the same session the common currency was quoted at 84.83 pence, also down more than 1% against the British pound from the previous week.
Political and fiscal headwinds
Analysts point to a combination of political uncertainty and fiscal strain across the euro zone as the primary drivers of the currency’s weakness. In France, rising sovereign‑debt costs have sparked worries about the sustainability of public finances. Meanwhile, Spain is preparing for a snap election that adds further uncertainty to the market’s outlook.
“We’re pretty pessimistic about the euro. We think it’s going to go down to under $1.10,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia. He added that a significant drop in oil prices, a stronger expectation of European Central Bank tightening, or decisive action to rein in budget deficits could help the euro, but he sees little chance of the latter happening soon.
Dollar strength fuels the gap
At the same time, the U.S. dollar continued its upward march, buoyed by still‑elevated Treasury yields that reached multi‑decade highs overnight. The greenback rose to $157.92 against the yen and the dollar index firmed at 102.16, after hitting an 18‑month high the day before.
Even though recent U.S. jobs data were weaker than expected, reducing the urgency for an immediate Federal Reserve rate hike, investors remain convinced that further tightening will be needed to keep inflation near the 2% target.
Broader market moves
Other major currencies also felt the ripple effect. The Australian dollar slipped 0.07% to $0.6967, while the New Zealand dollar eased to $0.5596. In Europe, the euro’s slide adds pressure on policymakers who are already grappling with higher borrowing costs in France, a situation that could spill over into the wider euro area if not addressed.
Barclays analysts noted that, despite recent inflation revisions, cost pressures remain and could keep the central bank on a path of gradual tightening. Data released on Monday showed a slowdown in U.S. services‑sector activity for September, but strong domestic demand continues to stretch supply chains and push up input prices, suggesting inflation may stay elevated into next year.
Outlook
Market participants will be watching upcoming political developments in France and Spain closely, as well as any concrete steps taken by euro‑zone governments to address budget deficits. Until fiscal discipline improves or the European Central Bank signals a decisive policy shift, the euro is likely to remain under pressure against a strong dollar.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
