Euro hits 17-month low as French debt fears escalate
The euro sank to a 17-month low against the US dollar on Monday, reaching $1.12, as concerns over eurozone debt, especially in France, intensified. The currency has lost around 5% of its value since the start of 2026, driven by investor worries about global bond yields, rising oil prices, and now France's fiscal risks. Ricardo Amaro, lead eurozone economist at Oxford Economics, attributed the slide to a shift in expectations regarding US Federal Reserve policy, but noted the latest drop was sparked by fears over France's rising debt levels.
France's fiscal troubles have deepened since President Emmanuel Macron took office in 2017, with public spending rising and tax cuts widening the budget deficit. The country's national debt has surpassed €1 trillion, pushing its debt-to-GDP ratio to nearly 118%. Investors are increasingly retreating to safer assets like German government debt, causing the spread between French and German 10-year bond yields to hit levels not seen since the eurozone debt crisis.
The European Central Bank (ECB) faces pressure to act, but any intervention risks exacerbating the situation. Deutsche Bank's Jim Reid warned of a 'mini-panic' in bond markets, while Amaro cautioned that the ECB must tread carefully to avoid worsening France's bond yields. Political instability in France, compounded by economic pressures, adds to the uncertainty, with upcoming elections raising concerns over potential policy shifts.
A weaker euro could fuel inflation by raising the cost of imported goods, particularly dollar-priced commodities like oil and gas. While some analysts downplay the risk of a new sovereign debt crisis, others warn that the ECB must closely monitor the situation to prevent further market turmoil.