According to Zhitong Finance APP, the euro has dropped to its lowest level since May 2025 as investors grow increasingly concerned about political and fiscal risks in Europe.

During Asian trading hours, the euro fell as much as 0.8%, touching $1.1161 per euro.

On Friday, the premium investors demand to hold French government bonds over equivalent German bunds rose to a level not seen since 2011.

Reports that Spanish government officials are preparing for an early general election have further intensified turbulence in the French bond market.

Meanwhile, hedge fund selling has become a prominent feature of the market.

According to traders who spoke on condition of anonymity, Asian fast-money funds sold euros and bought dollars in spot trading.

They said this pushed the euro exchange rate down to levels that triggered additional option-related selling.

Homin Lee, senior macro strategist at Lombard Odier Singapore Ltd., said: "The bond and foreign exchange markets are clearly sending signals that investors are uneasy about the growing instability of the French government and the weakening of the country's fiscal anchoring capacity ahead of the 2027 election."

Investors are increasingly worried about France's political situation.

As next year's election approaches, opposition parties appear to have little willingness to compromise with the outgoing government of French President Emmanuel Macron.

According to a poll released last week, far-right candidate Marine Le Pen and her far-left rival Jean-Luc Melenchon are expected to advance to a second-round runoff.

Strategists at JPMorgan, including Meera Chandan, previously noted that the euro has not yet reflected changes in the French bond market and said the euro remains vulnerable to further selling, especially against the Swiss franc and the Japanese yen.

They said: "The euro has not yet reflected the impact of widening OAT yields and related tail risks." "The euro exchange rate against the Swiss franc is too high and may continue to adjust downward."

In addition, a stronger dollar is also weighing on the euro.

The market expects that the Federal Reserve may need to raise interest rates three more times by July next year to curb inflation.

The dollar spot index rose on Monday to its highest level since the end of June.

Fiona Lim, senior foreign exchange strategist at Malayan Banking Berhad, said: "The dollar appears to have digested Friday's weak employment report, and market focus has shifted to the eurozone after French credit default swap (CDS) spreads widened significantly last week." "This has raised market concerns about the fiscal health of other highly indebted peripheral economies in the eurozone, further supporting the dollar's strength."