06.10.202610:17:14UTC+00Euro Hovers Near 17-Month Low as Fiscal Concerns Weigh

The euro traded just above $1.12, hovering near its weakest level since May 2025, as mounting concerns over France’s fiscal outlook weighed on sentiment. France is due to submit its 2027 budget today, while Marine Le Pen is expected to present plans to cut government spending by €25 billion per year. Political uncertainty across the euro area is also increasing: Spain has called a snap election for November 29, and Italy is preparing for general elections next year.

At the same time, recent bond-market turbulence has led investors to scale back expectations for further European Central Bank rate hikes. Markets now assign an 80% probability to one additional increase by year-end, down from prior pricing that implied at least three more moves by March 2027. ECB Chief Economist Philip Lane noted that higher borrowing costs could dampen demand and, in turn, lessen the need for further policy tightening.

In the United States, softer-than-expected inflation and labor market data have reinforced expectations that the Federal Reserve will keep rates on hold in October, with investors viewing a potential hike in December as the more likely scenario.