The euro currency has fallen to its lowest level against the U.S. dollar in 17 months.
The euro is sinking amid worries about the political situation in two of the biggest economies in the European Union, and as the U.S. dollar strengthens following a recent interest rate hike.
The euro was trading down 0.6% against the greenback on Oct. 5, its lowest level since May 19, 2025, according to market data.
The slumping euro is being brought lower by a rise in inflation, interest rates, and government borrowing costs.
The U.S. faces similar pressures, but investors are increasingly nervous about additional problems in Europe, such as weak growth and political uncertainty in Spain and France.
Spanish Prime Minister Pedro Sánchez has called a snap election for November as protests over the country’s housing crisis grow louder.
At the same time, France is experiencing a sovereign crisis as mounting debt becomes more expensive to service with interest rates moving higher.
Economists at Barclays (BCS) said in a note that that the French government’s efforts to lower the public deficit from 5.4% of gross domestic product (GDP) to 5% next year might not work.
“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,” write Barclays’ analysts.
Inflation across Europe reached an annualized rate of 3.8% in September, the highest level in three years.
Inflation on the continent is running well ahead of the European Central Bank’s 2% annualized target due largely to an 18.8% year-over-year rise in energy prices in September.
Consequently, the European Central Bank (ECB) has raised interest rates twice this year, in June and September. Each time, it lifted rates by 25 basis points.
The European Central Bank is widely expected to raise rates further at its next meeting on Oct. 29 as it tries to dampen inflation.
At the same time, the U.S. Federal Reserve raised its key lending rate by 25 basis points in September, its first increase in three years.
The rise in U.S. interest rates has given a lift to the American dollar in recent weeks, widening its spread against the euro currency.
