The euro is losing friends fast. It slid to levels against sterling last seen in June 2025 - a 16-month low - and, at the same time, fell by as much as 0.7% against the dollar to $1.1176 on Wednesday, with prices quoted at 9:50 am in London. It is also hovering near a one-year low against the yen and, a few days earlier, hit a 17-month trough versus the greenback.
This is about more than the dollar. Beyond dollar dynamics, Europe's markets have been rattled by the possibility that France's government could fall and by yet another deficit shock, while last week's steep slump in regional bonds rekindled memories of the euro area's crisis years; Spain's Prime Minister Pedro Sánchez further stoked uncertainty by calling snap elections.
"Concerns about France's failure to reduce its budget deficit have been magnified by uncertainties connected with the approaching French presidential election," said Jane Foley, a strategist at Rabobank. She added that rising French yields and a broader retreat in highly indebted European debt are piling pressure on the currency.
Positioning backs that up. An options-demand metric in EUR/GBP indicates positioning has swung toward sterling after a two-year stretch without such a bias. In the one-month EUR/GBP tenor, risk reversals now tilt toward sterling, a setup last seen in August 2024. In rates, investors have dialed back expectations for further European Central Bank tightening, with swaps now implying three quarter-point hikes by September 2027, down from four priced early last week.
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Rather than only selling EUR/USD, hedge funds are increasingly choosing other pairs. People in the FX market with knowledge of the flows, who asked not to be named as they aren't authorized to speak publicly, report that shorts have been added first against the Swiss franc and Japanese yen, and subsequently against the pound and dollar. Options pricing reflects the same shift: not since March 2025 have euro-yen hedges cost more than dollar-yen ones, with the premium wider by over 100 basis points.
Morgan Stanley's team led by David Adams expects additional weakness and sees better opportunities than the dollar leg. Their recommendation is to sell the euro versus the Australian dollar and the Swiss franc to guard against rising fiscal and political risks, and a possible dovish turn by the ECB if bond volatility persists.
Foley expects the euro to stay under pressure into next year and projects it to reach $1.12 in one year. With traders hunting cleaner ways to play Europe-specific risks, more of the action is shifting to euro crosses, not just EUR/USD. If your world includes travel, purchases, or income tied to Europe, currency swings like these can ripple through prices and budgets long before they show up in headlines.
Shorting a major currency is a strong statement about the outlook. Join Market Briefs free and watch the flows.
