Euro Rebounds on Easing French Debt Fears
The euro staged a notable recovery on Tuesday, rebounding from a 17-month low reached the previous day. The currency climbed 0.35%, positioning it for its most significant daily gain in seven weeks. This uptick followed a sharp decline in French government bond yields, which helped alleviate concerns about rising debt pressures within the eurozone.
The euro's rally came after it hit a low of $1.116 on Monday, marking its fourth consecutive weekly drop. Meanwhile, the dollar index slipped 0.32% to 101.83, its biggest daily decline since early September. Bond markets worldwide have faced upward pressure due to expectations of aggressive central bank rate hikes, driven by surging energy prices from the Iran war and inflation worries. French debt has come under particular strain ahead of a contentious 2027 election, with a snap election in Spain adding to the euro's challenges.
A temporary drop in energy prices on Tuesday helped French bonds recover, with the key 10-year yield falling 11.4 basis points to 4.7506%. Oil prices initially dipped after Saudi-backed Yemeni forces recaptured strategic territory from the Houthis, easing supply concerns. Marc Chandler, chief market strategist at Bannockburn Capital Markets, noted that this development helped pull yields down in France and Italy, providing a boost to the euro.
Far-right French presidential candidate Marine Le Pen announced plans to reduce spending by €140 billion if elected in 2027, up from her earlier proposal of €125 billion. The dollar's decline also supported other currencies, with the British pound rising 0.42% to $1.3275. However, the yen weakened slightly, with the dollar up 0.11% against it. The Bank of Japan hinted at further rate hikes, signaling its readiness to address inflation risks. Despite recent strength, the dollar's near-term prospects remain uncertain due to stretched positioning and Fed officials' cautious stance on rate hikes.