Euro hits 19-month low amid French fiscal and political risks

The euro dropped to its lowest point against the dollar in 19 months, trading 0.6% lower at $1.1164 as of 0700GMT on Monday. The decline came as investors reacted to sharp movements in French government bonds and a stronger US dollar. The pressure on the euro increased after Friday's volatility in Paris debt markets, where the spread between French and German 10-year yields widened to as much as 159 basis points before narrowing to around 141 basis points by the close.

French borrowing costs rose sharply, with the 10-year bond yield briefly nearing 5% on Friday. This reflected growing investor concerns about the country's fiscal outlook ahead of the 2027 presidential election. The widening gap between French and German borrowing costs signalled heightened perceived risk in eurozone sovereign debt, raising fears that fiscal strains could spread to other heavily indebted member states.

The dollar's strength further contributed to the euro's decline, even as the US currency gained despite softer-than-expected employment data and reduced expectations of a Federal Reserve interest-rate hike this month. The divergence in monetary policy outlooks between the US and Europe has added to the pressure on the shared currency, as investors seek safety in dollar-denominated assets during periods of European political uncertainty.