Euro Sinks to 17-Month Low Amid France Debt Crisis

The euro has reached its lowest point in 17 months, dropping to $1.1160 before stabilizing around $1.1190. This decline marks the fourth consecutive week of losses for the currency, driven primarily by growing concerns over France’s debt sustainability. The euro’s weakness extends beyond its pairing with the dollar, as it also fell against the Swiss franc and the British pound, indicating broader worries about the euro itself.

France’s 10-year borrowing premium over Germany has surged to roughly 150 basis points, a level not seen since the eurozone debt crisis over a decade ago. This premium reflects investors’ demand for higher yields to hold French debt, fueled by political gridlock and doubts about budget discipline. Some analysts caution that this could become a wider issue across the eurozone.

Despite softer expectations for a Fed rate hike in October, the US 10-year Treasury yield remains near 5.26%, providing continued support for the dollar. Europe faces its own inflation pressures, with September headline inflation accelerating to 3.8% and core inflation edging up to 2.5%. While this keeps further ECB tightening in view, higher rates also increase financing costs, exacerbating debt sustainability concerns.

In the near term, the euro is facing immediate resistance at $1.1200, with Monday’s low marking the first downside reference. The next psychological support level is $1.1100. Key economic reports, including the US ISM services report, Fed minutes, jobless claims, and the Michigan sentiment survey, will provide further context for the euro’s recovery prospects.