Euro Recovers as French Bond Yields Cool Debt Fears
The euro rose on Tuesday, marking its biggest daily gain in a month after hitting a 17-month low the previous day. The rebound came as falling French government bond yields eased concerns about debt market strain in the eurozone. The euro climbed 0.28% to $1.1252, recovering from a drop to $1.116 on Monday.
The dollar index fell 0.26% to 101.89, its largest daily drop since September 25. Global bond markets have faced pressure due to expectations of aggressive central bank rate hikes, driven by rising energy prices and inflation fears. French debt has been under particular strain ahead of a contentious 2027 election, while a snap election in Spain also added to eurozone uncertainties.
A decline in energy prices helped French bonds rally, with the 10-year yield dropping 8 basis points to 4.7824%. Crude prices fell as supply concerns eased following a Saudi-backed advance in Yemen. 'Saudi-backed Yemen forces have recaptured some strategic territory from the Houthis, this has seen oil prices drop sharply,' said Marc Chandler, chief market strategist at Bannockburn Capital Markets. 'In turn, this has helped drag yields down, including in France and Italy, and so this is giving the euro a bit of a bounce.'
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. The yen weakened slightly, with the dollar up 0.05% to 157.98 yen, as the Bank of Japan signaled readiness to raise interest rates further. Meanwhile, expectations for a Federal Reserve rate hike in October dropped to 22%, though markets still anticipate a December hike with 86% probability.