The euro hit a 17-month low against the dollar, dropping by 0.8% during Asian trading hours to $1.1161 before recovering slightly to $1.1179. Since the beginning of the year, the currency has declined by 4.86%. Market pressure intensified following reports that the Spanish government may call for early elections, compounding existing concerns over French fiscal stability.
Political uncertainty in France has also impacted bond markets. On Friday, the spread between French and German borrowing costs reached 152 basis points, marking the widest gap since 2011. Analysts note that markets are reacting to the instability of the French government and potential fiscal challenges ahead of the 2027 elections.
Rising interest rates are further affecting the European financial landscape. The European Central Bank raised its deposit rate to 2.50% in September to combat inflation. This shift has slowed share sales, with third-quarter volume falling by approximately 20% compared to the previous year, following a strong first half where sales reached $89 billion.
Despite the decline in deal flow, the Stoxx Europe 600 index remains near record highs, closing at 631.35 on Friday. This figure is roughly 5% below the August peak of 663.41. Investors remain cautious as they await the upcoming earnings season to determine if corporate profits can continue to offset the impact of higher borrowing costs.
