The euro extended its decline to around $1.117 on Monday, its weakest level since May 2025, as mounting fiscal and political risks in the euro area pressured the currency. In Spain, government and Socialist Party officials are reportedly backing an early election after Prime Minister Pedro Sánchez’s administration suffered a major parliamentary defeat last week, compounding worries over political stability and the budget outlook in France.
On the monetary policy front, the ECB faces a difficult trade-off, with elevated energy prices both stoking inflation and restraining growth. Eurozone inflation accelerated to 3.8% in September, the highest reading since September 2023 and well above the ECB’s 2% target, intensifying pressure for further policy tightening. At the same time, the US dollar held firm despite weaker-than-expected US employment data, reinforcing downward pressure on the euro even as expectations for a Federal Reserve rate hike this month were scaled back.
