Euro Holds Near 17-Month Low Amid French Debt Fears
The euro showed slight recovery on Tuesday, holding just above its 17-month low as euro zone bond markets stabilized. The currency had dropped sharply the previous day due to concerns that financial stress in French bond markets could spread further.
The US dollar remained strong, trading near its highest level since April 2025, supported by rising US Treasury yields. The euro fell to $1.116 in the prior session, extending a more than 1% decline from last week.
The euro has been under pressure due to worries about high debt levels and political gridlock in France, with an upcoming snap election in Spain adding to challenges. Rising French borrowing costs are raising concerns across the broader euro zone.
Joseph Capurso, a strategist at Commonwealth Bank of Australia, expressed pessimism about the euro, predicting it could drop below $1.10. He suggested that a significant decrease in oil prices or efforts by France to reduce its budget deficit could help the euro recover, though he sees little chance of the latter happening soon.
French bond yields decreased slightly on Tuesday as oil prices dipped, easing some concerns about a debt selloff. Meanwhile, the dollar index remained strong, supported by elevated US Treasury yields, which reached multi-decade highs on Monday.
The dollar’s strength persisted despite reduced expectations for a Federal Reserve rate hike in October, with investors still betting on tighter policy by December. The dollar rose against the yen and sterling, while the Australian dollar slipped slightly.