Euro hits 17-month low amid French fiscal crisis and contagion fears

The euro plunged to a 17-month low on Monday, reaching $1.1161 in Asian trading, as fiscal concerns in France triggered fears of contagion across the eurozone. The single currency has declined for four consecutive weeks, driven by France’s rising debt levels and political uncertainty ahead of next year’s election. The euro was last down 0.68% at $1.1176, also weakening against the Swiss franc and sterling.

Analysts warned against expecting a quick rebound, citing ongoing fiscal issues and growing contagion risks. Chris Weston, head of research at Pepperstone, advised against betting on a rapid recovery, while Brent Donnelly, president of foreign exchange trading at Spectra Markets, noted that political instability in France was already affecting markets.

The bond market turmoil and euro weakness raised concerns that France’s troubles could spread across the eurozone, similar to the debt crisis over a decade ago. Some analysts, however, cautioned that it was still too early to determine the extent of the contagion risk. Ninghui Liu, head of investment strategy at State Street Investment Management, suggested that the market was reacting more to France’s domestic issues than to a broader euro crisis.

Global borrowing costs have surged due to the recent bond rout, with French debt particularly hard hit. The premium of French 10-year borrowing costs over Germany’s jumped to 140 basis points last week, the largest weekly increase in 17 years. Meanwhile, the dollar strengthened as traders sought safe-haven assets, despite softened expectations for a US rate hike in October.