Dollar Surges to 17-Month High Amid European Crisis

The US dollar has reached its highest level in 17 months due to increased demand for safe-haven assets amidst the European crisis. The French government's draft budget aims to reduce the deficit from 5.6% to 5% of GDP by 2027 through €54 billion in spending cuts, but markets are skeptical about approval.

The euro has plummeted against both the US dollar and Swiss franc, with a 1% intraday drop in EURUSD and a 1.7% decline in EURCHF in just two days. The yield spread between French and German bonds is nearing 150 basis points, exceeding peak levels seen in 2012.

The dollar's strength comes despite the probability of the Federal Reserve raising interest rates in October falling to 22%, with Fed officials hinting at a potential pause in monetary tightening. ISM data on business activity in the manufacturing sector was disappointing, but still indicates a strong US economy.