Political risks and concerns about public finances in Europe are putting the euro under pressure. The strong dollar is also weighing on the common currency.
Inflation in France: The political situation in France is increasingly worrying investors. Photo: dpa
Berlin. The euro has fallen to its lowest level since May 2025. The decisive factor is investors' growing concerns about political uncertainty and the strained budget situation in several eurozone countries. In addition, a stronger dollar puts pressure on the common currency.
The euro temporarily fell by 0.8 percent to $1.1161 in Asian trading. Fast-trading funds in Asia sold the common currency against the dollar, traders said. The selling pressure resulted in additional sales triggered by options.
Reports from Spain that government representatives are preparing for early elections caused additional unrest. At the same time, France is increasingly in the focus of the financial markets. The premium that investors demand for French government bonds over comparable German federal bonds reached its highest level since 2011 on Friday.
Investors are looking to France
“Bond and foreign exchange markets are clearly signaling investor unease over the increasing instability of the French government and the erosion of the country’s fiscal anchor ahead of the 2027 elections,” said Homin Lee, senior macro strategist at Lombard Odier Singapore.
The political situation in France is increasingly worrying investors. Opposition parties show little willingness to work with the outgoing government of President Emmanuel Macron. At the same time, next year’s elections are getting closer.
A poll published last week sees right-wing extremist Marine Le Pen and left-wing extremist Jean-Luc Mélenchon likely in a runoff.
JPMorgan strategists including Meera Chandan warned on Friday that the euro had not yet fully priced in developments in the French bond market. This means that the common currency is vulnerable to further losses – especially against the Swiss franc and the yen.
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“The euro does not yet reflect the expansion of OATs and the associated risks,” the strategists wrote. The euro against the Swiss franc is too high and could fall further. On Monday, the common currency fell against the franc for the third trading day in a row, losing around 0.5 percent.
Strong dollar puts additional pressure on euro
In addition to the political and fiscal risks in Europe, the strength of the dollar is also weighing on the euro. The dollar is being supported by expectations that the US Federal Reserve will have to raise interest rates three more times by July to curb inflation.
The Bloomberg Dollar Spot Index rose to its highest level since late June on Monday.
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FranceEuropeSwiss FrancFedInflation
“The dollar appears to have shaken off last Friday’s weaker jobs report,” said Fiona Lim, senior FX strategist at Malayan Banking. Following the significant widening of credit default swap spreads for France last week, the markets' focus has shifted to the eurozone.
This in turn draws attention to the budget situation of other highly indebted countries within the currency area and provides additional support for the dollar.
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