The euro is trading near its lowest levels of the year against the dollar, with its path ahead seen as heavily dependent on a global energy shock and rising political risk in Europe. After pushing toward 1.20 dollars in August, the euro has fallen about 2 percent this month, dipping just below 1.14 dollars to a two-month low, and was recently changing hands around 1.137 dollars. In Germany, far-right gains in state elections have dealt a blow to Chancellor Merz, while French markets are under pressure from concerns over high debt and political gridlock, compounded by the approach of the 2027 presidential election. The yield spread that French 10-year government bonds demand over German bunds has widened sharply to more than 110 basis points, and Bank of America estimates that the euro falls 0.4 percent against the dollar for every additional 10 basis points of spread widening. The war in Iran has disrupted liquefied natural gas shipments through the Strait of Hormuz, pushing European gas prices above 80 euros per megawatt-hour this month to their highest since late 2022. Kasper Hense of RBC BlueBay Asset Management said most forecasters expect European gas prices in a range of 85 to 100 euros, and that if that proves correct the euro could easily slide to 1.12 dollars.
Bank of America CorpEuro near year-to-date lows as energy shock and European political risk weigh on the currency.
