Euro Hits 17-Month Low as France Concerns Weigh

The euro dropped to a 17-month low on Monday as concerns over France's fiscal position weighed heavily on the single currency. Investors grew wary of France's rising debt and political gridlock ahead of next year's presidential election, pushing the euro down 0.8% to $1.1160 before a slight recovery to $1.1208. The premium on French 10-year bonds over safer German bonds surged above 150 basis points, signaling growing doubts about the government's ability to implement fiscal reforms.

In other developments, Spain's Prime Minister Pedro Sanchez called for an early election next month, though initial market reactions were muted. Meanwhile, U.S. stocks showed resilience as hopes of a Federal Reserve rate hike pause this month provided support. U.S. Treasury yields retreated slightly, with the 10-year yield at 5.2686% and the 2-year yield at 4.7975%, reflecting easing expectations of aggressive rate hikes.

Asian markets gained, with Japan's Nikkei rising 2.4% and MSCI's Asia-Pacific shares outside Japan up 1.2%. Brazilian stocks were also expected to jump following the presidential runoff between right-wing Senator Flavio Bolsonaro and leftist President Luiz Inacio Lula da Silva. Oil prices edged lower, with Brent crude futures down 0.8% at $101.39 per barrel and U.S. crude sliding 1.4% to $89.84 per barrel.

Sterling slipped 0.1% to $1.3233, while the yen remained steady at 157.91 per dollar. The dollar gained support from elevated U.S. Treasury yields and a weaker euro, pushing the greenback up 0.3% to 102.194. Analysts noted that while tighter policy elsewhere and a growing case for an October Fed pause are headwinds for the dollar, strong U.S. growth and foreign appetite for U.S. securities keep dollar risks skewed to the upside.