Euro plunges to 17-month low on French fiscal fears and dollar strength
The euro dropped to a 17-month low on Monday, falling as low as $1.1161 in Asian trading. This decline was driven by concerns over France’s fiscal position and a steep selloff in its bond market, which raised fears of contagion across the region. Despite weaker-than-expected U.S. jobs data, the dollar strengthened, benefiting from investor anxiety over rising borrowing costs and political uncertainty ahead of France’s April 2027 elections.
The euro weakened 0.67% to $1.1178, also losing ground against the Swiss franc and sterling. French bond futures fell 0.13%, remaining near record lows as investors assessed the inflationary impact of surging oil prices. The yield on 10-year U.S. Treasury notes stood at 5.262%, easing after reaching a 24-year high last week, which triggered wider concerns across global financial markets.
The dollar index rose 0.47% to 102.37, supported by rising Treasury yields that increased the appeal of U.S. assets. Investors sought the safety of the dollar amid a broader selloff in global debt markets. OCBC strategists noted that elevated rate volatility could continue to weigh on carry trades and cyclical currencies, while safe-haven currencies like the Swiss franc and dollar remained supported.
Recent dollar strength has also reflected expectations of potential interest rate hikes by the Federal Reserve. However, weaker U.S. employment data reduced near-term tightening expectations, with traders pricing in a 78% probability that the Fed would leave rates unchanged in October. Analysts, such as Bank of Singapore’s Mansoor Mohi-uddin, questioned whether current market pricing for rate hikes was too aggressive, given the labor market’s slower-than-expected growth.