Euro Recovers as French Bond Yields Cool Debt Fears

The euro staged a recovery on Tuesday, poised for its largest daily gain in a month after hitting a 17-month low the previous day. The rebound came as French government bond yields eased, alleviating concerns about rising debt pressures in the eurozone. The euro climbed 0.28%, reaching USD1.1252, after dropping to USD1.116 on Monday, its lowest since May 2025, and experiencing a fourth consecutive week of declines.

The dollar index, which tracks the U.S. currency against a basket of peers, fell 0.26% to 101.89, marking its biggest daily drop 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 U.S.-Israeli conflict with Iran and rising inflation. French debt has come under particular strain as political leaders struggle to rein in budget deficits ahead of a contentious 2027 election, further pressured by Spain's recent snap election.

Energy prices helped French bonds rally on Tuesday, with the key 10-year yield dropping 8 basis points to 4.7824%. Crude prices fell as rising Middle Eastern exports and a G7 emergency stockpile release eased supply concerns. Meanwhile, far-right French presidential candidate Marine Le Pen, leading in the polls, announced plans to reduce spending by €140 billion (USD158 billion) if elected in 2027, up from her original €125 billion target.

The weakening dollar also provided support to other currencies, with the British pound rising 0.39% to USD1.327 after reaching a one-week high of USD1.3283.