Euro Drops to 17-Month Low on France Debt and Political Concerns

The euro experienced a sharp decline on Monday, reaching its lowest level since May 2025. The currency dropped as much as 0.8% to $1.1161 during Asian trading before slightly recovering to around $1.1176. This decline marked the euro's fourth consecutive week of losses, with hedge funds contributing to the sell-off.

The primary driver behind the euro's weakness was growing concerns over France's government debt. The yield premium on French 10-year bonds over German bonds widened by 34 basis points in five sessions, the largest increase in 17 years. This widening gap raised questions about France's ability to control its budget deficit and the political divisions hindering spending agreements.

The pressure on the euro extended beyond its pairing with the dollar. The currency lost about 0.5% against the Swiss franc and 0.39% against sterling. Additional worries about political stability in Europe, particularly reports of potential early elections in Spain, further weighed on the euro.

Meanwhile, the dollar strengthened despite weaker U.S. employment data. The dollar index rose 0.47% to 102.37, as traders reduced expectations of a Federal Reserve rate hike in October. However, expectations for a December increase and further tightening in early 2027 kept U.S. interest rates relatively high compared to other developed markets.