Euro plunges to 17-month low amid France debt crisis fears
The euro dropped to a 17-month low against the US dollar on Monday, driven by growing concerns over France's budget deficit and a recent bond market selloff. The single currency fell to $1.1211, after hitting a low of $1.116, its weakest level since May 2025. French government bonds have been under pressure due to expectations of higher policy rates and rising political uncertainty ahead of the 2027 election, raising doubts about the stability of the eurozone's second-largest economy's public finances.
Despite some relief in French bond yields at the start of the trading week, the yield gap between French bonds and German bunds remains elevated. The gap widened to nearly 160 basis points on Friday, the largest since the eurozone's sovereign debt crisis in 2011, before narrowing slightly to 136 basis points. 'It just seems to me like the market is rejecting this 2027 budget. There’s an election coming up … who’s going to vote for fiscal austerity with elections coming up?' said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto.
The euro's decline marks its fourth straight weekly fall against the dollar, tumbling 3.1% during this period. The dollar gained strength on US economic data pointing to persistent inflation, even as expectations for a Federal Reserve rate hike at the end of the month have dropped. The dollar index rose 0.28% to 102.19, reaching its highest level since April 2025. Against the yen, the dollar strengthened 0.12% to 158.04, despite verbal warnings from Japanese authorities against yen depreciation.
In other developments, Spanish Prime Minister Pedro Sanchez called a snap election for November 29 to address a housing crisis that has sparked nationwide protests. Sterling weakened 0.21% to $1.3213 but showed a slight gain against the euro. Japanese Prime Minister Sanae Takaichi pledged to control bond issuance and act against market turbulence, aiming to reassure investors concerned about Japan's public finances.