Euro Set for Biggest Weekly Fall in Months Amid France Fiscal Concerns and Fed Hawkish Shift

The euro is on track for its biggest weekly fall in months against the dollar due to concerns over France's fiscal trajectory and the Federal Reserve's hawkish shift in mid-September. The single currency rose 0.15% to $1.126 on Friday, but is set for a 1.17% weekly fall, the largest since early June.

French government bonds have come under selling pressure in recent weeks amid expectations of rising policy rates and growing political risk ahead of 2027 elections. French 10-year yields jumped to their highest level since 2002 on Thursday, with the yield gap between French bonds and safe-haven Bunds widening to about 150 basis points, the highest since the euro area's sovereign debt crisis in 2011.

Analysts point to a weakened chancellor in Germany, low European gas storage levels, high energy prices, persistent competition from China, and the risk of hybrid attacks from Russia as further weighing on the euro. 'The path to fiscal adjustment could be much more difficult than otherwise,' said Thierry Wizman, global forex and rates strategist at Macquarie Group.

Meanwhile, investor focus will shift to the US payroll report due later in the day, which is expected to show job growth slowed in September. The unemployment rate is forecast to have been 4.1% for a third straight month, leading traders to rein in wagers of a rate hike from the Federal Reserve.