Euro Slides to 17-Month Low Amid Eurozone Debt Crisis Fears

The euro fell to a 17-month low against the dollar on Monday, as concerns over France's budget deficit and a bond market selloff raised fears of a renewed sovereign debt crisis in the eurozone. French government bonds faced pressure due to expectations of higher policy rates and political uncertainty ahead of the 2027 election, which has cast doubt on the country's ability to stabilize its public finances. The yield gap between French bonds and safe-haven Bunds widened to about 150 basis points on Friday, the highest since the 2011 eurozone crisis, before narrowing slightly.

Hauke Siemssen, a strategist at Commerzbank, noted that the bond market dynamics were increasingly worrisome, resembling a sovereign debt crisis. The euro sank to as low as $1.1161 in Asian trading, its weakest level since May 2025, and was last down 0.47% at $1.12. The single currency also dropped 1.8% against the Swiss franc since last Thursday, with analysts suggesting further downside potential due to eurozone fiscal risks.

The euro's decline was exacerbated by the Federal Reserve's September rate hike, which reduced its appeal as an alternative to the dollar. Traders now see an 80% chance of the Fed holding rates steady in October, up from 36% a week earlier, according to the CME FedWatch tool. The US dollar index rose 0.30% to 102.23, nearing its highest level since April 2025, a peak triggered by President Donald Trump's tariff package known as 'Liberation Day.'

The Japanese yen remained steady at 157.92, supported by government warnings against yen depreciation and its safe-haven status. Prime Minister Sanae Takaichi reassured investors about Japan's fiscal sustainability, easing concerns about rising bond yields and deteriorating public finances. Data showed that core inflation in Japan's capital accelerated in September at its fastest pace in 10 months, bolstering the case for further interest rate hikes.