Euro plunges to 17-month low amid France debt crisis fears
The euro dropped to its lowest level in 17 months against the dollar on Monday, driven by growing concerns about France's budget deficit and a sharp selloff in the bond market last week. Investors are worried about a potential sovereign debt crisis in the euro zone, particularly as French government bonds faced increased pressure. Rising political uncertainty ahead of the 2027 election in France has cast doubt on the country's ability to stabilize its public finances.
The yield gap between French bonds and safe-haven German Bunds widened to nearly 160 basis points on Friday, the largest since the euro zone's sovereign debt crisis in 2011. This gap later narrowed to about 137 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 fell 0.37% to $1.1211, after reaching a 17-month low of $1.116, marking its fourth straight weekly decline against the dollar.
Meanwhile, the dollar gained strength due to persistent inflation concerns in the United States. The Institute for Supply Management reported that its nonmanufacturing Purchasing Managers Index fell to 54.9 in September, slightly below estimates but still indicating expansion. The survey's measure of prices paid by businesses jumped to 74.0 from 72.6 in August. Market expectations for a Federal Reserve rate hike at the end of the month have dropped, but the dollar index rose 0.26% to 102.16, reaching its highest level since April 10, 2025.
Against the yen, the dollar strengthened 0.09% to 157.97, despite verbal warnings from Japanese authorities against yen depreciation. Japanese Prime Minister Sanae Takaichi pledged to control bond issuance and act swiftly against market turbulence. A business survey showed that Japan's service sector expanded at a weaker pace in September due to earthquake disruption. Sterling weakened 0.14% to $1.3223 but was up about 0.2% versus the euro.