Dollar strengthens as French fiscal concerns weigh on euro

The US dollar maintained its strength on Monday, reaching near a 17-month high as traders reacted to softer-than-expected US jobs data and ongoing fiscal concerns in France. The euro fell to US$1.1246, its lowest level since May 2025, following four consecutive weeks of declines. France's rising debt levels and political uncertainty ahead of next year's election have weakened the common currency.

Meanwhile, the British pound was trading at US$1.3241, and the Japanese yen stood at 157.69 per US dollar. The dollar index, which tracks the US currency against six major peers, remained at 101.97. Markets continue to recover from last week's bond selloff, which pushed global borrowing costs to multi-decade highs and hit French debt particularly hard.

The yield on US 10-year Treasuries dropped to 5.262%, down from a 24-year high that had shaken markets. Analysts noted that the dollar is benefiting from rising Treasury yields, which make US assets more attractive, and safe-haven demand amid global debt selloffs. Matthew Ryan, head of market strategy at Ebury, highlighted the dollar's appeal in the current environment.

Traders have scaled back expectations for a Federal Reserve rate hike in October, now pricing in a 78% chance of rates staying unchanged, up from 36% a week earlier. However, they still anticipate a hike in December and two more in early 2027. Analysts like Jefferies' Mohit Kumar suggest market expectations may be too aggressive, with only one hike likely from both the Fed and the European Central Bank by March.