European political and fiscal risks heightened fears, and the euro fell to a 17-month low

The Zhitong Finance App learned that the euro fell to its lowest level since May 2025 due to increased investors' concerns about political and financial risks in the European region. During the Asian trading session, the euro fell 0.8%, hitting 1.1161 US dollars per euro.

On Friday, the premium required for investors to hold French treasury bonds over the same period rose to a level not seen since 2011. There are reports that Spanish government officials are preparing for an early general election, which has further exacerbated the turmoil in the French bond market.

At the same time, hedge fund sell-offs have become a major feature of the market. According to the trader, who asked not to be named, the Asian Fast Money Fund sells euros and buys dollars in spot trading. They said this drove the euro exchange rate down to a level that triggered a sell-off related to additional options.

Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd., said: “The bond and foreign exchange markets are clearly signaling that investors are uneasy about the French government's growing instability and the weakening of the country's fiscal anchoring capacity ahead of the 2027 general election.”

Investors are increasingly concerned about the political situation in France. As next year's elections approach, the opposition seems to have little will to compromise with the outgoing French President Emmanuel Macron's administration. According to a poll released last week, far-right candidate Marina Le Pen and far-left rival Jean-Luc Mélenchon are expected to advance to the second round.

J.P. Morgan strategists, including Meera Chandan, previously pointed out that the euro has not yet reflected changes in the French bond market, and indicated that the euro is still vulnerable to further sell-off, especially against the Swiss franc and yen. “The euro has yet to reflect the effects of OAT yield expansion and associated tail risk,” they said. “The EUR/CHF exchange rate is too high, and the downward correction may continue.”

Furthermore, a stronger dollar is also putting pressure on the euro. The market anticipates that in order to curb inflation, the Federal Reserve may need to raise interest rates three times by July next year. The US dollar spot index rose to its highest level since the end of June on Monday. Fiona Lim, senior foreign exchange strategist at Malaysian Banking Berhad (Malaysian Banking Berhad), said: “The dollar seems to have digested last Friday's weak employment report, and the market's focus has turned to the Eurozone, after French credit default swap (CDS) spreads widened sharply last week.” “This has drawn market attention to the fiscal health of other highly indebted peripheral economies in the Eurozone, further supporting the strengthening of the dollar.”