NamibiaEuro falls to 17-month low
The euro has slumped to its lowest level against the dollar in 17 months amid growing concern over France's debt position and the stability of the wider single currency bloc. France's Cac 40 index slides as announcement of snap election in Spain also fuels eurozone uncertainty
Global Newsflix 2 min read
The euro fell to below $1.12 against the dollar on Monday, before recovering slightly. This drop marks the lowest level for the euro against the dollar in 17 months.
Investors are concerned about France's rising debt costs as the government battles to control its stretched public finances in the run-up to next year's presidential election.
The yield on French 10-year government bonds hit the highest level since 2002, before dipping back on Friday. This pushed the gap between France and Germany's borrowing costs to its widest level since 2012.
The French prime minister, Sébastien Lecornu, is hoping to cut €54bn of public spending in his budget. However, he faces stiff opposition from politicians jockeying to replace Emmanuel Macron at the election in April 2027.
Marine Le Pen, leader of the hard-Right National Rally, is considered the frontrunner, but investors have questioned her commitment to spending cuts. She said a 'golden rule' to restrain French deficits would be subject to a referendum.
The announcement of a snap election in Spain by the socialist prime minister, Pedro Sánchez, has also fuelled eurozone uncertainty. Madrid's benchmark Ibex 35 index rose by 0.5% on Monday.
The dollar index is pushing to new highs of the year, propelled by the sell-off in the euro. The focus will be on today's ISM services data and the release of the FOMC minutes on Wednesday evening.
Key facts
- The euro fell to below $1.12 against the dollar on Monday
- France's 10-year government bond yield hit the highest level since 2002
- The gap between France and Germany's borrowing costs is at its widest level since 2012
- A snap election in Spain has been announced for November 29
Three perspectives
Neutral
The euro's decline is driven by concerns over France's debt position and the upcoming presidential election. Investors are watching the situation closely, and the dollar index is benefiting from the euro's weakness. The outcome of the Spanish election and the French budget submission will be key to determining the euro's next move.
Positive
The decline of the euro could make European exports more competitive, potentially boosting economic growth. The French government's efforts to cut public spending could also lead to a more stable fiscal position in the long run.
Negative
The rising debt costs and political uncertainty in France and Spain could lead to a wider eurozone crisis. The lack of commitment to spending cuts from the frontrunner in the French presidential election, Marine Le Pen, has also raised concerns among investors.
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