Dollar Strengthens as Euro Weakens on French Fiscal Concerns

The US dollar maintained its strong position on Monday, nearing a 17-month high as traders reassessed the likelihood of a Federal Reserve rate hike in October following weaker-than-expected US jobs data. Meanwhile, fiscal concerns in France weighed heavily on the euro, pushing it to its lowest level since May 2025 after four straight weeks of declines. The euro was trading at $1.1246, reflecting worries about France's rising debt levels and political uncertainty ahead of next year's elections.

Other major currencies also faced pressure, with the British pound at $1.3241 and the Japanese yen at 157.69 per US dollar. The dollar index, which tracks the US currency against six major peers, stood at 101.97. Last week's global bond market selloff further bolstered the dollar's appeal, as investors sought safety amid rising borrowing costs and inflation fears driven by surging oil prices.

Matthew Ryan, head of market strategy at Ebury, noted that the dollar benefits from both higher Treasury yields and a broader selloff in global debt, driving safe-haven flows into the greenback. OCBC strategists warned that elevated rate volatility could continue pressuring cyclical currencies and the euro, while traditional safe havens like the Swiss franc and US dollar remain supported. The Swiss franc was trading at 0.8286 per dollar and 0.9312 per euro after a 1% rise last week.

The Australian dollar held steady at $0.6956, while the New Zealand dollar dipped 0.1% to $0.5610. Recent dollar strength has also been fueled by expectations of Fed rate hikes in coming months, though Friday's jobs data reduced those expectations. Traders now see a 78% chance of the Fed holding rates steady in October, up from 36% a week earlier, but still anticipate a hike in December and two more in early 2027. Analysts, however, believe the market's pricing may be overly aggressive.