The euro tumbled to its weakest level in 17 months on Monday, as mounting worries over France's public finances — amplified by a brutal global bond selloff — drove investors out of the single currency and into the dollar.
The euro slid as low as $1.1161 in Asian hours, its weakest since May 2025, according to Reuters reporting from Singapore on October 5. It later steadied near $1.1178, down about 0.67% on the day, after logging four consecutive weekly declines. The common currency also slipped 0.4% against the Swiss franc and 0.34% against sterling. The dollar index, which tracks the greenback against six major currencies, rose 0.47% to 102.37, hovering near a 17-month high.
The selling pressure centers on France. Investors are increasingly uneasy about the country's heavy debt load and political gridlock ahead of next year's presidential election. France's draft 2027 budget pairs spending restraint with tax increases, aiming to bring the deficit down from around 5.4% of GDP toward 5% — but markets gave it a cool reception. The yield on France's 10-year government bond crept toward 4.96%, its highest since 2002, while the spread over German Bunds blew past 140 basis points, the widest since the 2012 eurozone debt crisis. Deutsche Bank strategist Jim Reid noted the Franco-German spread's one-day jump of 13.9 basis points was its largest since March 2020, at the height of the Covid turmoil.
"The French politics trade that many expected would escalate this winter as April 2027 elections neared … is here now," said Brent Donnelly, head of foreign exchange trading at Spectra Markets. "It's not completely obvious what might fix things here as any budget promises made by the French government now are not super credible with a change of power coming soon."
"The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe-haven flows into the greenback," said Matthew Ryan, head of market strategy at Ebury.
The anxiety is no longer confined to France. Once considered part of the eurozone's core alongside Germany, France's wobble is spilling over: yields on the debt of heavily indebted peripheral economies such as Greece and Italy are surging, in what analysts at Maybank described as signs of contagion. Swissquote analyst Ipek Ozkardeskaya warned that fading appetite for French debt is a problem for the broader euro area. France's CAC 40 fell 0.8% on Monday even as the pan-European STOXX 600 edged up 0.2%. Spain added to the political risk: Prime Minister Pedro Sanchez has called a snap election for November 29.
Notably, the dollar's rally came even as last week's weaker-than-expected US jobs report dented bets on a Federal Reserve rate hike this month — traders now price in less than a 20% chance of an October move, though December remains in play. The 10-year US Treasury yield stood at 5.262%, below last week's 24-year high of 5.344% that rattled markets. Strategists at OCBC said that as long as rate volatility stays elevated, pressure on the euro and carry trades is likely to persist, while traditional havens such as the Swiss franc and the dollar should remain supported.
Four things to watch in the coming weeks: the fate of France's budget in parliament, whether the French-German yield spread keeps widening, the tone of the Fed's October meeting, and the campaign ahead of Spain's snap election.