The euro has dropped to its lowest level since May 2025. This followed reports that Spanish government officials are preparing for an early general election, intensifying investor concerns over political and fiscal risks in Europe.
The euro fell as much as 0.8% against the dollar during Asian trading hours, touching 1.1161. Traders said hedge funds in Asia sold the euro against the dollar in the spot market, and the breach of certain key options levels triggered further selling, amplifying the decline.
Three people close to Spanish Prime Minister Pedro Sánchez said that after the ruling party suffered a heavy defeat in last week's congressional elections, some cabinet ministers as well as other senior government and ruling Socialist Party figures believe that calling an early general election is the best strategy. The people requested anonymity because the discussions were not public.
The news came after market concerns over France's political stability and budget outlook had already been mounting. Homin Lee, a senior macro strategist at Lombard Odier Singapore Ltd., said bonds and currency markets are clearly reflecting investor unease over the French government's growing instability and the gradual weakening of the country's fiscal discipline ahead of the 2027 election.
During Asian trading on Monday, French government bond futures edged lower, while German government bond futures rose modestly. On Friday, the yield premium investors demand to hold French government bonds over German bonds of the same maturity rose to 152 basis points, reaching that level for the first time since 2011.