Dollar Retreats from 18-Month High as Euro Gains on French Fiscal Plans

The U.S. dollar eased on Tuesday, retreating from an 18-month high as Treasury bond yields softened and the euro gained support. The dollar index, which measures the greenback against six major currencies, dropped 0.3% to 101.86, nearing its highest level since April 2025.

The euro rose 0.3% to $1.1259, rebounding after recent losses tied to France's fiscal turmoil. France's 10-year borrowing costs surged to levels unseen since the early 2000s, widening the spread between French and German bonds to its broadest point since 2012. The country's deficit is projected at 5.4% of GDP this year, with public debt nearing 120%. Far-right presidential candidate Marine Le Pen proposed drastic spending cuts, aiming to reduce the deficit to -3.7% in 2027 and -2.2% by 2032, though analysts questioned the feasibility of her plans.

European Central Bank (ECB) Chief Economist Philip Lane offered a cautious outlook on inflation, stating that high energy prices had not yet sparked aggressive second-round effects in the Eurozone. His remarks suggested the ECB may avoid overtightening despite elevated consumer price growth. Meanwhile, U.S. Treasury yields dipped, with the 10-year yield falling 3.5 basis points to 5.278%, and the 2-year yield slightly declining to 5.661%. Concerns over inflation, corporate debt, and fiscal policies have fueled recent market volatility.

President Donald Trump commented on the dollar's strength, attributing it to the U.S.'s economic performance and arguing that a robust dollar helps control inflation. The dollar's recent rise has been tempered by reduced expectations of an immediate Federal Reserve rate hike, following softer inflation and labor market data.