Euro hits 17-month low as France’s budget fails to reassure markets

The euro hit its lowest point in 17 months on Monday, October 5, 2026, dropping over 0.75% to $1.1214. The decline was triggered by France’s budget announcement, which failed to reassure investors despite plans for €43bn in spending cuts and tax increases. The budget aims to reduce the deficit to 5% of GDP in 2027, but analysts at ING argue this is still too high to prevent France’s debt from rising further, given it already stands at 119% of GDP.

The euro’s slide has broader implications for the eurozone. A weaker currency makes dollar-priced oil more expensive for Europe, exacerbating energy costs already above $100 per barrel. Investors are increasingly viewing France as a financial risk for the entire eurozone, with the gap between French and German 10-year borrowing costs widening by 13.9 basis points in a single day, the largest jump since March 2020.

Adding to the pressure, the US dollar has strengthened due to rising yields and expectations of further Federal Reserve rate hikes amid geopolitical tensions. This shift contrasts with investor doubts about the dollar’s dominance just a year ago. The European Central Bank’s efforts to bolster the euro’s global role now face additional challenges as France struggles to stabilize its finances.

The weaker euro benefits exporters like German carmakers and French luxury brands but hurts consumers and businesses reliant on dollar-priced energy and raw materials. With energy costs already a political issue, imported inflation could further strain European governments. Until France demonstrates fiscal stability, the euro’s weakness and inflationary pressures are likely to persist, putting more pressure on the ECB.