Euro Hits 17-Month Low Amid French Budget Deficit Fears

The euro fell to a 17-month low on October 5, trading at $1.1118, down 0.62% against the U.S. dollar. This decline was driven by growing concerns over France’s budget deficit and the government’s ability to reduce it. The currency recorded its fourth consecutive week of declines, marking its sharpest drop in about four months.

French government bonds came under pressure, with investors shifting toward safer assets like German Bunds. The yield spread between French bonds and German Bunds widened to around 150 basis points, the highest level since the 2011 eurozone debt crisis. Commerzbank strategist Hauke Siemssen warned that recent bond market developments increasingly resemble a sovereign debt crisis, citing widening French bond spreads and a shift toward German Bunds.

The dollar strengthened, with the dollar index rising 0.39% to 102.33 points. Traders saw a 78% probability of the U.S. Federal Reserve keeping rates unchanged in October, up from 36% a week earlier. The yen also saw a slight gain, strengthening by 0.10% to 157.67 per dollar, supported by warnings from Japanese authorities and rising inflation.