Euro Falls to 17-Month Low Against U.S. Dollar Amid Political and Fiscal Concerns

The euro fell to a 17-month low against the dollar on October 5, 2026, as political and fiscal concerns impacted European markets. Rising borrowing costs and political instability have raised worries about potential strains within the eurozone and the possibility of intervention by the European Central Bank (ECB). France is facing high deficits and increasing long-term rates, coupled with political deadlock on how to address these issues. Additionally, Spain's Prime Minister Pedro Sánchez has called a snap election for November 29, which could either strengthen his position or allow for a populist right government to gain power. The euro dropped below $1.12, marking its lowest point since May 2025, and has decreased approximately 4% since September 8. France's increasing borrowing costs are reminiscent of the eurozone crisis of the early 2010s, although the ECB currently possesses more tools to manage market stress. In an opinion piece published in the Financial Times, former ECB board member Lorenzo Bini Smaghi suggested that the central bank should pause its quantitative tightening program due to the stress on long-term rates. He noted that the ECB is better equipped now than in the past to handle financial market tensions that could threaten the integrity of the euro. Bini Smaghi pointed out that the ECB has bond-buying tools available but questioned the rationale behind the ongoing quantitative tightening policy, which involves not replacing government bonds as they mature. This approach requires private investors to absorb a larger share of government bonds at a time when long-term rates are already rising.