Euro Rebounds as French Bond Yields Cool Debt Fears

The euro bounced back on Tuesday, marking its strongest one-day gain in a month after hitting a 17-month low the day before. The rebound came as French government bond yields retreated, easing concerns about rising debt strains in the eurozone. The euro rose 0.28% to $1.1252, its biggest daily increase since September 3. Earlier, it had dropped to $1.116 on Monday, following a more than 1% decline the previous week, the fourth consecutive weekly drop.

The dollar index, which tracks the US currency against a basket of others, fell 0.26% to 101.89, on track for its largest daily decline since September 25. Global bond markets have faced upward pressure on yields due to expectations of aggressive central bank rate hikes, fueled by surging energy prices amid the US-Israeli war with Iran. Rising inflation and concerns about government finances have added to the volatility.

A drop in energy prices helped French bonds rally, with the 10-year yield falling 8 basis points to 4.7824%. Crude prices declined as Middle Eastern exports increased and the G7 released emergency stockpiles, easing supply concerns. Marc Chandler, chief market strategist at Bannockburn Capital Markets, noted that Saudi-backed Yemeni forces recapturing strategic territory from the Houthis contributed to the oil price drop, which in turn helped lower bond yields in France and Italy.

Far-right French presidential candidate Marine Le Pen announced plans to reduce spending by €140 billion ($158 billion) if elected in 2027, up from her previous target of €125 billion. Meanwhile, the yen weakened slightly, with the dollar gaining 0.05% to 157.98 against the Japanese currency. The Bank of Japan may signal this month that underlying inflation has met its 2% target, suggesting further rate hikes are likely. The US dollar’s strength has persisted despite fading expectations of a Federal Reserve rate hike in October, though markets still anticipate an 86% chance of a hike in December.