Market News
Euro hits 17-month low as political uncertainty in Spain and France rattles markets - CNBC
Key Points
- The euro is trading at its lowest level against the U.S. dollar since May 2025.
- Both economies face higher inflation, interest rates and borrowing costs, but the euro area is also grappling with low growth and political volatility.
- Spain is heading for a snap election while France is struggling to appease markets over its fiscal trajectory.
The euro hit its weakest level against the U.S. dollar in 17 months on Monday, as concerns over the political trajectories of two of the euro zone’s biggest economies spill over into wider markets.
The eurozone currency was last 0.6% lower against the greenback, hitting its lowest level since May 19, 2025, according to LSEG data.
That comes as the euro zone grapples with a simultaneous rise in inflation, interest rates and government borrowing costs.
The U.S. faces similar pressures, but investors are increasingly unsettled by additional vulnerabilities unique to Europe: persistently weak growth, a fragmented bond market and political uncertainty in Spain and France.
Spanish Prime Minister Pedro Sánchez on Monday called a snap election for November, as protests over the country’s housing crisis reach boiling point.
France meanwhile remains the “poster child” for Europe’s sovereign market problems, as mounting debt piles become more expensive to service.
Spreads are widening in euro zone bond yields as volatility mounts
Economists at Barclays said Friday that while the French government had presented a draft outline of its 2027 budget, aimed at reducing the public deficit from 5.4% of GDP to 5% next year, the country is unlikely meet its fiscal targets even if the plan is adopted in the coming months.
“French fiscal and political developments cloud the euro area outlook, with fiscal fundamentals remaining weak and unlikely to reach an inflection point before next year’s presidential election,” they said.
Strategists at ING meanwhile said the budget, even if passed in full, would “not resolve France’s structural fiscal problems.”
“The deficit would remain too high to stabilise the debt ratio, while ageing-related expenditure and interest payments would continue to rise. The next government will therefore have to make further difficult choices,” they said.
“So far, none of the main presidential candidates has presented a sufficiently detailed plan explaining which expenditure would be reduced, which taxes would change or how the debt ratio would eventually be stabilised.”
