The euro fell to its weakest level since May 2025, as investors grew increasingly concerned about political and financial risks within the eurozone, pushing the single European currency further down the dollar, according to Bloomberg News.
The euro fell as much as 0.8 percent during Asian trading on Monday, touching $1.1161, amid a sell-off led by hedge funds, according to market traders.
The pressure on the euro came after reports that Spanish government officials were preparing for the possibility of early elections, adding to concerns already shaking the French bond market.
In France, the spread that investors demand to hold French government bonds compared to their German counterparts has risen to its highest level since 2011, indicating growing concern about the financial and political situation in the Eurozone's second-largest economy.
Hedge funds increase the pressure
Traders told Bloomberg News that fast-moving investment funds in Asia sold the euro and bought the dollar in the spot market, pushing prices to levels that triggered more sell orders linked to option contracts.
Homin Lee, chief macro strategist at Lombard Odier Singapore, explained that bond and currency markets are sending clear signals of investor unease about increasing political instability in France and the erosion of fiscal discipline ahead of the 2027 elections.
Growing concern about France
Investors are increasingly concerned about the French political landscape, given the declining chances of consensus between opposition parties and the outgoing administration of Emmanuel Macron before the upcoming elections.
Opinion polls indicate that far-right candidate Marine Le Pen and her far-left rival Jean-Luc Mélenchon are strong contenders to qualify for the second round of the presidential election.
Analysts at JPMorgan believe that the euro has not yet fully absorbed the downturn in the French bond market, making it vulnerable to further declines, especially against the Swiss franc and the Japanese yen.
They pointed out that the European currency does not yet fully reflect the widening yield spreads on French bonds and the risks associated with them, stressing that the euro/Swiss franc pair is still too high and may continue to fall.
The strength of the dollar is putting pressure on the euro.
In addition to European factors, the euro is under additional pressure as a result of the strength of the US dollar.
The dollar is benefiting from expectations that the US Federal Reserve may have to raise interest rates three more times by next July to control inflation.
This pushed the Bloomberg spot dollar index to its highest level since late June.
Fiona Lim, chief currency strategist at Maybank, told Bloomberg News that markets largely ignored last Friday's weak U.S. employment data and shifted their focus to the Eurozone after a sharp rise in the cost of insuring French debt.
She added that these developments have brought renewed attention to the state of public finances in highly indebted European economies, which has boosted the appeal of the dollar as a haven for investors.
