Global Market: Euro under pressure as France debt worries, Spain vote weigh

The euro hovered near a 17-month low on Tuesday as political uncertainty and fiscal concerns across the euro zone weighed on the common currency, while the dollar extended its rally on the back of elevated U.S. Treasury yields, according to a report by Reuters.

The euro slipped to $1.1219 in Asian trading after falling to its lowest level since May 2025 in the previous session. It declined about 1.2% over the past week. Against sterling, the euro was last at 84.87 pence after losing more than 1% against the British currency last week.

The common currency faced renewed pressure from concerns over high debt levels and political gridlock in France. A snap election in Spain is also adding to uncertainty, further clouding the outlook for the euro zone's finances and economic policy, the report stated.

The decline in the euro has coincided with a sharp rise in French borrowing costs, raising concerns about the potential spillover into other euro zone bond markets. The report stated that investors are increasingly focused on fiscal risks as governments across the region face pressure to contain deficits while supporting economic growth.

The dollar, meanwhile, continued to strengthen as U.S. Treasury yields climbed to multi-decade highs. The dollar index rose to 102.17 after reaching an 18-month high in the previous session.

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Sterling eased 0.06% to $1.3216, while the dollar gained 0.18% against the yen to 158.16.

The dollar's gains have persisted despite reduced expectations of a Federal Reserve rate hike this month following weaker-than-expected U.S. jobs data. Investors, however, continue to expect the central bank may need to maintain a restrictive policy stance as inflationary pressures remain persistent.

U.S. services-sector activity slowed in September, data released on Monday showed, but strong domestic demand continued to put pressure on supply chains and pushed up prices paid by businesses for inputs. The data reinforced concerns that inflation could remain elevated into next year.

The report stated that the Bank of Japan could announce that underlying inflation has broadly reached its 2% target this month, highlighting its readiness to raise interest rates again in the coming months. The prospect of further policy tightening in Japan is being closely watched by currency markets, particularly as the yen remains weak against the dollar.

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The Australian dollar was little changed at $0.6971, while the New Zealand dollar slipped 0.05% to $0.5597.

Overall, currency markets remained focused on the diverging policy and fiscal outlooks across major economies, with rising bond yields supporting the dollar while political and fiscal concerns continued to weigh on the euro.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)
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