Dollar strengthens as French fiscal concerns weigh on euro

The US dollar began the week on strong footing, nearing a 17-month high as traders reacted to soft US jobs data and fiscal concerns in France. The euro fell to $1.1246, its lowest level since May 2025, after four straight weeks of declines due to France’s rising debt and political uncertainty ahead of next year’s election.

The dollar index, measuring the US currency against six major peers, stood at 101.97. The pound was at $1.3241, while the yen traded at 157.69 per dollar. Last week’s bond market selloff, which pushed global borrowing costs to multi-decade highs, has kept investors on edge.

Matthew Ryan, head of market strategy at Ebury, noted that the dollar benefits from rising Treasury yields and safe-haven demand amid the global debt selloff. OCBC strategists warned that high rate volatility could continue pressuring currencies like the euro, while traditional safe havens like the dollar and Swiss franc remain supported.

The Australian dollar held steady at $0.6956, while the New Zealand dollar dipped 0.1% to $0.5610. Traders have lowered expectations for a Fed rate hike in October, now pricing in a 78% chance of no change, up from 36% a week earlier. However, they still anticipate a December hike and two more in early 2027.

Analysts like Jefferies’ Mohit Kumar believe the market’s rate hike expectations are too aggressive. He expects just one hike each from the Fed and the European Central Bank, citing potential declines in oil prices or slower growth as factors that could change the outlook.