The euro was last 0.6% lower against the greenback, hitting its lowest level since May 19, 2025, according to LSEG data. The decline comes as the euro zone faces a simultaneous rise in inflation, interest rates and government borrowing costs.
While the United States deals with similar pressures, investors are particularly worried about vulnerabilities unique to Europe: persistently weak growth, a fragmented bond market and political uncertainty in Spain and France.
Spanish Prime Minister Pedro Sánchez is expected to call a snap election on Monday, as protests over the country's housing crisis reach boiling point. France, meanwhile, remains the "poster child" for Europe's sovereign market problems, with mounting debt piles becoming more expensive to service.
Economists at Barclays noted that while the French government has 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.
"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," they said.
Strategists at ING echoed that view, saying the budget, even if passed in full, would "not resolve France's structural fiscal problems." They added that the deficit would remain too high to stabilize 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," they said.
So far, none of the main presidential candidates has presented a sufficiently detailed plan explaining which expenditures they would cut or revenues they would raise, according to the sources.