Euro's dollar resilience tested by energy prices and political risk
The euro is trading near its lowest levels of the year against the dollar, pressured by a global energy shock and rising political risk in Europe, after falling about 2% this month to just below $1.14. The currency's outlook is muddied by a renewed rise in oil prices and political instability, including Germany's far-right gains in state elections and French concerns over debt and gridlock ahead of the 2027 presidential election. The premium on French 10-year bonds over German has widened above 110 basis points. European gas prices above €80 per megawatt hour, driven by the Iran war choking LNG shipments, are a key hurdle, with analysts saying prices must soften for the euro to recover. Options traders have turned more negative, though some forecasters maintain a $1.16 year-end target.