Euro Hits 17-Month Low as Spain and France Political Turmoil Rattles Markets

The euro fell to a 17-month low against the US dollar on Monday, dropping 0.6% to its weakest level since May 19, 2025, according to LSEG data. Investors are worried about the political direction of two of the euro zone's biggest economies.

The single currency is now trading at its lowest level against the greenback since May 2025. The euro area is dealing with a simultaneous rise in inflation, interest rates and government borrowing costs, pressures the United States shares. But investors are increasingly unsettled by vulnerabilities unique to Europe: persistently weak growth, a fragmented bond market, and political uncertainty in Spain and France.

Spain Calls Snap Election

Spanish Prime Minister Pedro Sánchez on Monday called a snap election for November, as protests over the country's housing crisis reached boiling point. The call adds a fresh layer of uncertainty for a euro zone economy already under strain.

France, meanwhile, remains what analysts describe as the "poster child" for Europe's sovereign market problems, with mounting debt piles becoming more expensive to service.

France's Fiscal Gap

Economists at Barclays said Friday that while the French government had presented a draft outline of its 2027 budget, aimed at reducing the public deficit from 5.4% of GDP to 5% next year, the country is unlikely to meet its fiscal targets even if the plan is adopted in the coming months.

"French fiscal and political developments cloud the euro area outlook, with fiscal fundamentals remaining weak and unlikely to reach an inflection point before next year's presidential election," Barclays said.

Strategists at ING said the budget, even if passed in full, would "not resolve France's structural fiscal problems."

"The deficit would remain too high to stabilise the debt ratio, while ageing-related expenditure and interest payments would continue to rise. The next government will therefore have to make further difficult choices," ING said.

"So far, none of the main presidential candidates has presented a sufficiently detailed plan explaining which expenditure would be reduced, which taxes would change or how the debt ratio would eventually be stabilised."

Pressure Builds on the Euro

The combination of weak growth, heavy borrowing and unresolved politics in Paris and Madrid is weighing directly on the currency. Both governments face higher inflation, higher interest rates and higher borrowing costs, but the euro area carries the added drag of low growth.

With France unable to convince markets on its fiscal trajectory and Spain heading to the polls in November, the euro's near-term direction will depend heavily on whether either government can restore confidence before borrowing costs climb further.