Dollar Index Surges on French Debt Worries
The US Dollar Index reached an 18-month high recently, driven by growing concerns over French debt. France's government debt stands at nearly 120% of its annual economic output, creating significant financial strain. The yield gap between French and German 10-year borrowing costs widened to about 1.5 percentage points on Friday, the largest spread since 2011. European Central Bank President Christine Lagarde reassured in a recent interview that the current situation is not comparable to 2011.
The Euro, which constitutes 57.6% of the Dollar Index, dropped to its lowest level since May 2025, contributing to about three-quarters of the index's rise. The Institute for Supply Management (ISM) services index came in at 54.9, slightly below the 55 forecast. However, the Dollar Index's decline after the release was more influenced by the Euro rebounding above 1.1200 than by changes in US yields, which actually inched higher.
From a technical perspective, Monday's surge was characterized by two sharp increases, pushing the index from the October 1 high near 102.20 to a peak just above 102.50. Since then, the index has retraced about half of that gain in two separate drops, both of which held above 102.00. The rebound between these drops stalled short of 102.40, and the ISM release near that high triggered a brief dip that quickly reversed. The pullback from the peak is minimal compared to the rally from the September 9 low near 98.60, following three straight weekly gains. Momentum indicators have remained near maximum levels since late September.