Euro faces political, fiscal reckoning as it hovers near 17-month low

The euro struggled near a 17-month low on Tuesday, weighed down by political uncertainty and fiscal concerns across the euro zone, while the dollar extended a rally supported by higher US Treasury yields, according to a Reuters report filed from Singapore.

The common currency ticked slightly lower to $1.1220 in the early Asian session, having slid in the previous session to its weakest level since May 2025. That extended a 1.2% decline recorded over the previous week. Against the British pound, the euro was last quoted at 84.83 pence, after losing more than 1% versus sterling over the same period.

Reuters attributes the pressure on the single currency to worries about high debt levels and political gridlock in France, with an upcoming snap election in Spain adding further headwinds. The report notes that a sliding euro represents the latest alarm bell for policymakers already contending with a surge in French borrowing costs, a move that has begun to spill over into the broader euro area bond market.

Joseph Capurso, a strategist at Commonwealth Bank of Australia, was quoted in the report as saying he is "pretty pessimistic about the euro," adding that the weakness had not come as a surprise. He suggested that a sustained recovery in the currency would likely require some combination of a significant fall in oil prices, a marked increase in expectations for tighter European monetary policy, or clearer progress by euro zone governments on reining in budget deficits.

The euro's slide is one side of a broader move in currency markets. Separate market commentary published the same day noted that the US Dollar Index has climbed toward the 102.50 region, reaching levels last seen in April 2025. That strength has persisted even after Friday's softer-than-expected US non-farm payrolls report, which reduced expectations for another near-term Federal Reserve rate increase. Monday's US ISM services PMI also eased slightly, though an increase in the prices-paid component was read as a sign that inflation pressures remain persistent.

The dollar's advance has been attributed to a combination of elevated Treasury yields, safe-haven demand and weakness in several other major currencies rather than to any single catalyst. For traders, that mix has made bond markets the central reference point for foreign-exchange direction in recent sessions, with moves in French and broader European sovereign yields feeding directly into the euro.

Elsewhere in the currency complex, the Japanese yen has also been on the defensive, with USD/JPY holding near 158 as the wide yield gap between the United States and Japan continues to favour the dollar. Japanese officials have toughened their rhetoric in recent days, with Finance Minister Satsuki Katayama reiterating that Japan and the United States stand ready to act decisively against excessive currency volatility. The Bank of Japan remains on a tightening path, but the yen has struggled to benefit while other major central banks maintain restrictive settings. Market reports note that traders have been cautious about adding large bearish yen positions as the pair approaches the 160.00 area, a zone where the perceived risk of official intervention rises.

In commodities, gold has been trading in the vicinity of the $4,100 region, with the metal's recent performance closely tied to the same drivers moving currencies: the direction of the dollar and the level of bond yields.

Attention now turns to the week's scheduled events. US August trade balance figures are due, with market expectations centred on a deficit near $89.8 billion, while the minutes of the most recent Federal Open Market Committee meeting are scheduled for release on Wednesday. Several Federal Reserve speakers are also on the calendar. Those releases are being watched for any further detail on how policymakers are weighing a cooling labour market against still-firm inflation readings.

Nothing in this report should be read as a forecast or as investment advice.

Follow EUR/USD, GBP/USD, USD/JPY and XAU/USD on Puqet: WOZILA, our forex & gold signal service, publishes trade ideas with a stated entry, stop-loss and take-profit, and explains how each one is tracked.

This is a news summary for general information only — not financial advice, and nothing here is a recommendation to buy or sell any currency or metal. Exchange rates and gold prices can move sharply around data releases and central-bank decisions, and trading them carries a real risk of loss, which leverage magnifies. Always verify against the original source and do your own research before making a financial decision.