Euro sinks to 17-month low on France debt fears

The euro hit a 17-month low on Monday as concerns over France’s rising debt levels and political instability weighed heavily on investor sentiment. The common currency dropped more than 0.8% to $1.1161 in Asian trading before slightly recovering to $1.1178. The euro’s decline comes after a roughly 2.5% loss last month, driven by fears over France’s fiscal challenges ahead of next year’s presidential election.

Investors are demanding higher premiums to hold French 10-year bonds compared to safer German bonds, with the spread exceeding 150 basis points. This has raised alarms about potential spillover effects across European markets. Bart Wakabayashi, branch manager at State Street in Tokyo, noted, “We’re starting to see some cracks in overall euro sentiment.” He added that investors are aggressively selling the euro against the dollar.

The euro’s slide boosted the U.S. dollar, which gained 0.5% against a basket of currencies, supported by higher U.S. Treasury yields. The dollar index reached 102.39, while the yen and sterling also saw declines. Elias Haddad, global head of markets strategy at BBH, pointed out that while tighter monetary policies elsewhere and a potential Fed pause pose challenges, strong U.S. growth and foreign demand for U.S. securities continue to support the dollar.

Asian stocks rose on Monday as investors scaled back expectations of a Federal Reserve rate hike this month. Data showing slower-than-expected U.S. job growth in September and downward revisions for prior months strengthened the case against a rate increase. Japan’s Nikkei surged 2%, and MSCI’s Asia-Pacific index gained 0.9%. However, European stock futures were mixed, with the EUROSTOXX 50 and DAX slightly lower, while FTSE futures rose 0.26%.