The euro dropped to a 17-month low against the dollar on Monday, touching $1.1161 during Asian trading before recovering slightly to $1.1179. The currency is down 4.86% for the year. It fell as much as 0.8% in Asian hours, pressured by reports that Spain's government may call an early election — a development that deepened worries over France's budget.
Spain's Early Election Talk Adds to Eurozone Anxiety
Three people close to Prime Minister Pedro Sánchez told Bloomberg that senior officials now back an early ballot. Cabinet ministers and Socialist party leaders see an early election as the best response to last week's heavy defeat in parliament. The political uncertainty in Madrid compounds existing concerns about France, where the gap between French and German borrowing costs reached 152 basis points on Friday — its widest since 2011.
Homin Lee, senior macro strategist at Lombard Odier Singapore, said bond and currency markets are signaling investor discomfort about rising instability of the French government and erosion in the country's fiscal anchor ahead of the 2027 elections.
Hedge Funds Sell Euros in Spot Market
Asia-based hedge funds sold euros for dollars in the spot market, pushing the currency through option barriers and extending the decline. The move came as traders digested the political developments in Spain and France, with the latter's budget woes showing no sign of resolution.
The European Central Bank raised its deposit rate to 2.50% in September amid energy-driven inflation. The prospect of further ECB rate increases is clouding the outlook for share sales. Third-quarter European stock sale volume dropped roughly 20% from a year earlier, following a first half in which European stock sales reached $89 billion, up 36% year-on-year.
Equity Markets Show Cracks Beneath the Surface
European listings from the past year have lost 17% on average. The Stoxx Europe 600 closed Friday at 631.35, about 5% below its August intraday high of 663.41. In August, Goldman Sachs said the Stoxx Europe 600 had outpaced the S&P 500 since early 2025.
JPMorgan's Ashish Jhajharia said that steadiness in headline indices hides investor unease, with concerns around rates, inflation, and geopolitics. The euro's slide and the widening French-German bond spread suggest that unease is now showing up in currency and debt markets as well.
With Spain's political future uncertain and France's budget still unresolved, traders will be watching for any official announcements from Madrid and further signals from the ECB. The euro's next move may depend on whether those worries escalate into concrete fiscal or political crises.
