Dollar Strengthens as Euro Hits 17-Month Low on French Risks

The U.S. dollar strengthened on Monday, with the ICE U.S. Dollar Index rising 0.4% to reach its highest level since April 2025. The index climbed to 102.53 before settling around 102.5 in U.S. trading, up from Friday’s close of 101.93. The euro fell to a 17-month low, dropping as low as $1.1161 before recovering slightly to $1.12. This marked the euro’s fourth consecutive weekly decline, driven by concerns over France’s fiscal and political risks.

The spread between French and German bond yields widened to about 150 basis points before narrowing to 145.5 basis points. Commerzbank strategist Hauke Siemssen noted that the bond-market pattern was reminiscent of sovereign-debt-crisis dynamics, while Saxo’s Neil Wilson highlighted France as the key source of euro-area risk premium. The euro’s weakness had a significant impact on the dollar index, as the euro accounts for 57.6% of its weighting.

Despite the dollar’s strength, expectations for an October Federal Reserve rate hike declined. The latest U.S. labor data showed weaker-than-expected job growth, with nonfarm payrolls increasing by only 29,000 and the unemployment rate at 4.2%. Market pricing reflected this shift, with the probability of an October rate hike dropping to 18% from 64% a week earlier. The divergence between softer U.S. rate expectations and a firmer dollar suggested that the currency move was driven more by European risks than Fed policy.

U.S. Treasury yields remained high, with the benchmark 10-year yield around 5.3% in early trading. In contrast, French borrowing costs rose sharply, with the 10-year yield remaining below Friday’s peak of 4.993%. Investors will be watching key economic data, including the September Consumer Price Index on October 14 and the Federal Reserve’s next policy meeting on October 27-28, to gauge the dollar’s next move.