Euro Hits 17-Month Low as French Debt Concerns Rise

The euro dropped to its lowest level against the dollar in 17 months as concerns about France’s rising debt and deficits intensified. French debt is expected to reach nearly 122% of the country’s gross domestic product next year, despite planned spending cuts. The underwhelming 2027 budget plan has raised fears that government spending will remain high ahead of next year’s presidential election, where far-right leader Marine Le Pen, a fiscal populist, could win.

Bond investors are increasingly worried as interest rates and borrowing costs rise globally to combat inflation. The yield on France’s 10-year government bonds surged to 4.8%, the highest since the 2011 eurozone debt crisis. ‘The fact that French bonds and the euro sold off last week, and the downward momentum could persist this week, is a sign that Europe is out of favour with investors and bond market vigilantes are watching developments in the eurozone closely,’ said Kathleen Brooks, research director at XTB.

Spanish Prime Minister Pedro Sanchez’s call for snap elections added another layer of uncertainty, as investors already had concerns about France’s fiscal credibility and political stability. ‘Spain now adds another layer of uncertainty,’ said Patrick Munnelly, market strategist at Tickmill Group. ‘Europe’s political risk is weighing on the euro.’

Despite the euro’s slide, global stocks saw gains, with the Nasdaq reaching another all-time high following weak U.S. jobs data. The Dow Jones Industrial Average remained near record levels, and optimism in Asian and European stock markets persisted, driven by artificial intelligence growth. However, Paris stocks fell as Schneider Electric shares dropped nearly 10% after announcing a $22.6 billion deal to buy U.S. engineering software specialist PTC.