Euro slumps to 17-month low as Spain election talk rattles FX markets

Monday's Asian session took the euro to 1.1161 against the dollar — a level not seen since May 2025. The drop reached 0.8% at its worst, and the catalyst, according to Bloomberg, was chatter that Madrid is lining up a snap general election. Reports of the Spanish plan deepened existing investor unease about politics and public finances across the eurozone. MarketRadar's snapshot this morning had EUR/USD at 1.1179, down 0.63% — roughly 80 pips below Friday's pre-payrolls level.

The move had real flow behind it. Big macro funds trading out of Asia were heavy sellers of the single currency in spot markets, and their selling ran into option barriers that magnified the slide, traders told Bloomberg. Thin Monday-morning liquidity in Asia tends to amplify exactly this kind of chain reaction.

Spain is the new ingredient in the euro's selloff. Prime Minister Pedro Sanchez is weighing whether to dissolve parliament after Congress voted down two emergency housing decrees on 2 October, per reporting by El Pais and El Mundo cited by Reuters BreakingViews. Catalan party Junts joined the conservative PP and Vox in voting no, leaving the minority coalition exposed. Weekend reporting put 29 November as the earliest possible date under Spain's 54-day election calendar, with an announcement expected as soon as Monday. It lands at a bad moment: France's 10-year yield sits at 14-year highs, its spread over German bunds has widened roughly 40 basis points in three weeks per FXStreet, a hotly contested French presidential election is due in 2027, and Germany's chancellor is under pressure from AfD gains in regional elections. Eurozone flash inflation hit 3.8% in September, up from 3.2% in August, but with energy running at 18.8% year-on-year the print read as a cost shock rather than a reason to buy the currency.

Why it matters

The euro keeps falling even though the European Central Bank is still in hiking mode, having lifted its deposit rate to 2.50% in September. That tells you how thoroughly the fiscal-politics trade is dominating the rates trade. Rabobank's Jane Foley has been flagging exactly this: the growth risk hanging over the euro, with long euro positioning still crowded and the region exposed as a net energy importer.

The other side of the pair is doing the pushing. The Federal Reserve raised rates 25 basis points in September, and although October hike bets faded after the weak September payrolls print of 29,000 versus 90,000 expected, the dollar does not need fresh hike pricing to stay bid. The 10-year Treasury yield near 5.34%, its highest since 2002, keeps capital flowing into the greenback on its own. It is the same dynamic that powered the dollar's fourth weekly win over the euro, and it is why the 10-year yield at 24-year highs keeps showing up in the FX tape.