Euro Falls to 17-Month Low on French Fiscal Contagion Fears

The euro plunged to a 17-month low on Monday, hitting US$1.1161 in Asian trading, as fiscal concerns in France triggered contagion fears across the eurozone. The decline marked the currency's fourth consecutive weekly drop, driven by worries over France's rising debt levels and political uncertainty ahead of the 2027 elections.

Analysts warned against expecting a quick recovery. Chris Weston, head of research at Pepperstone, cautioned traders to "don't stand in front of the train," while Brent Donnelly of Spectra Markets noted that France's fiscal issues were escalating sooner than anticipated. The bond market turmoil, which pushed global borrowing costs to multi-decade highs, worsened the euro's woes.

The French 10-year bond yield spread over Germany's surged by 34 basis points last week, its largest weekly jump in 17 years. Meanwhile, the US 10-year Treasury yield dipped slightly to 5.260 percent after hitting a 24-year high. The dollar strengthened, supported by rising Treasury yields and safe-haven demand, despite softer US jobs data.

Some analysts downplayed the risk of broader eurozone contagion. Ninghui Liu of State Street Investment Management described France's troubles as a "country story" rather than a systemic crisis. However, he acknowledged that if the strain deepened, Germany and other eurozone members would likely intervene to stabilize the situation.