Euro plunges to 17-month low amid French fiscal fears

The euro dropped to a 17-month low on Monday, driven by worries over France's fiscal situation and a sharp selloff in its bond market. The single currency fell as low as $1.1161 during Asian trading, its weakest level since May 2025, after four straight weeks of declines. Investors are increasingly concerned about France's rising borrowing costs and political uncertainty ahead of the April 2027 elections.

The euro was last down 0.67% at $1.1178, while it also weakened against the Swiss franc and sterling. The selloff followed a global bond market decline last week, which pushed borrowing costs to multi-decade highs. French government debt was particularly affected as investors assessed the inflationary impact of surging oil prices.

The dollar strengthened despite weaker-than-expected U.S. jobs data, with the dollar index rising 0.47% to 102.37. Rising Treasury yields have made U.S. assets more appealing, while global debt market selloffs have encouraged investors to seek the safety of the dollar. The yield on 10-year U.S. Treasury notes stood at 5.262%, easing after hitting a 24-year high last week.

Analysts expect the Federal Reserve to leave interest rates unchanged in October, with traders pricing in a 78% probability of no change this month. However, markets still anticipate a rate hike in December, followed by two more increases in the first half of 2027. Some strategists believe current market pricing for rate hikes may be too aggressive.