Euro Slides to 17-Month Low on Eurozone Political and Fiscal Risks

Gotrade News - The euro slid to its lowest level in roughly 17 months against the US dollar, falling below $1.13 for the first time since May 2025 as political uncertainty in Germany and fiscal worries in France piled onto an energy-driven inflation shock.

According to Reuters, as published by GBM, EUR/USD closed at 1.1291 on September 30, down 0.35% on the day, capping a September decline of nearly 2.5%, the euro's largest monthly drop since July 2025.

The weakness carried into October. As reported by Trading Economics, the euro briefly hit its lowest level in more than a year before edging back up to $1.126 on October 5.

Key Takeaways

• EUR/USD fell below $1.13 for the first time since May 2025.

• The euro lost nearly 2.5% in September, its worst month since July 2025.

• German political turmoil and French fiscal concerns are adding risk premium to European assets.

• Eurozone inflation reached 3.8%, the highest since September 2023.

German Election Shock and French Deficit Weigh on the Euro

Political risk is a central driver of the selloff. Per Trading Economics, Germany's governing CDU suffered its worst-ever state election result in Mecklenburg-Western Pomerania, prompting some party members to call for Chancellor Friedrich Merz to step down after just 16 months in office.

France is the fiscal pressure point. Trading Economics notes that France's budget deficit stands at more than 5% of GDP, and that the country's fiscal watchdog described the government's new deficit-reduction plans as based on "optimistic" assumptions.

Reuters, via GBM, reported that French government bond yields climbed to 14-year highs during a September in which bond markets posted their worst monthly decline in years.

Eurozone Inflation at 3.8% Complicates the ECB Outlook

The energy shock is feeding directly into prices. According to Trading Economics, eurozone inflation accelerated to 3.8%, its highest since September 2023 and well above the European Central Bank's 2% target, driven largely by higher fuel prices.

Dollar Strength and What It Means for US Stocks

The other side of the trade is a firm greenback. As reported by Reuters via GBM, the Dollar Index rose 0.31% to near its highest level since mid-May 2025, and the dollar posted a sixth consecutive quarterly gain, its longest streak since 2022, as US Treasury yields recorded their biggest quarterly increase since 1994.

That support softened on Friday's data. Per Trading Economics, the US economy added just 29,000 jobs in September, well below expectations of 90,000, lifting bets that the Fed may hold rates at its upcoming meeting. The weak jobs report helped the euro bounce off its lows.

For investors in US stocks, a weaker euro means euro-denominated revenue converts into fewer dollars. That is a factor to watch for US multinationals with large European sales, such as McDonald's (MCD), Coca-Cola (KO), and Procter & Gamble (PG), when they report results.

Sources

• El euro cae a mínimo de 17 meses, golpeado por combinación de tasas de interés e inflación (GBM, via Reuters)

• Euro Slides as Oil Rises and Political Risks Persist (Trading Economics)