Euro Rebounds as French Bond Yields Cool Debt Fears

The euro rose on Tuesday, marking its strongest gain in a month after hitting a 17-month low the previous day. The rebound came as French government bond yields declined, easing concerns about debt market strains in the euro zone. The euro gained 0.28%, reaching $1.1252, after falling to its lowest point since May 2025 at $1.116 on Monday. The dollar index, which tracks the U.S. currency against a basket of others, dropped 0.26% to 101.89.

The decline in bond yields was supported by a drop in energy prices, which helped French bonds rally. The 10-year French bond yield fell 8 basis points to 4.7824%. Crude oil prices decreased due to rising Middle Eastern exports and a G7 emergency stockpile release, following a military advance by Saudi-backed Yemeni forces. 'Saudi-backed Yemen forces have recaptured some strategic territory from the Houthis, which has seen oil prices drop sharply,' said Marc Chandler, chief market strategist at Bannockburn Capital Markets.

Far-right French presidential candidate Marine Le Pen announced plans to reduce spending by €140 billion if she wins power in 2027, up from the €125 billion previously planned. Meanwhile, the yen weakened slightly, with the dollar up 0.05% to 157.98 against the Japanese currency. The Bank of Japan may signal that underlying inflation has hit its 2% target, suggesting further rate hikes in the coming months.

The U.S. dollar's recent strength has persisted despite reduced expectations for a Federal Reserve rate hike in October, now at about 22% from 51% a week ago. However, markets are still pricing in an 86% chance for a hike at the December meeting.