Euro Holds Above 17-Month Low Amid French Debt Fears

The euro steadied just above a 17-month low on Tuesday, as euro zone bond markets showed signs of stabilization. The currency had fallen sharply the previous day due to concerns about rising French debt levels and potential spillover effects across the region. The euro was down less than 0.1% at $1.12, after hitting its lowest point since May 2025 at $1.116. The ongoing slide in the euro's value has raised alarm bells for policymakers, as surging French borrowing costs threaten to impact the broader euro zone.

Analysts remain pessimistic about the euro's outlook. Joseph Capurso, a strategist at Commonwealth Bank of Australia, predicted the euro could drop below $1.10. He suggested that a significant decrease in oil prices or meaningful steps by France to reduce its budget deficit could help stabilize the currency, though he deemed the latter unlikely in the near term.

French bond yields fell slightly on Tuesday as oil prices dipped, easing some of the immediate concerns about a debt selloff. Meanwhile, the US dollar maintained its strength, supported by elevated US Treasury yields, which hit multi-decade highs. The dollar index remained near 102.16, after reaching an 18-month high of 102.53 the previous session.

The greenback's resilience persists despite lower expectations of a Federal Reserve rate hike in October, following weaker-than-expected US jobs data. Investors still anticipate a high likelihood of a rate hike in December. The dollar gained 0.2% against the yen, reaching 158.21, while sterling held steady at $1.323. The Australian dollar slipped 0.1% to $0.696.