Euro Slumps Below 1.1250 as French Fiscal Concerns and Hawkish Fed Signals Weaken Currency

The Euro has fallen below 1.1250 against the US Dollar due to concerns over France's fiscal situation, which has led to a rise in French government bond yields. The decline comes ahead of the release of the September US Nonfarm Payrolls (NFP) data on Friday, which is expected to show an increase of 90,000 job additions.

French 10-year government bond yields retreated after reaching their highest level since 2002 in the previous session, following the French government's unveiling of its 2027 budget. This has added to concerns over France's fiscal outlook and driven up oil prices, further supporting the Greenback.

According to Prashant Newnaha, senior rates strategist at TD Securities, 'this is a flight-to-safety move spurred on by developments in Europe.' He expects the dollar index and the yen to strengthen as a result of this move. Hawkish signals from Federal Reserve officials, including Dallas Fed President Lorie Logan, who said the central bank will need to raise short-term borrowing costs by at least 50 basis points to turn monetary policy 'modestly restrictive', have also supported the Greenback.

Markets are now pricing in nearly a 24.9% probability of a Fed rate hike in October and a 79.4% odds of an increase in December, according to the CME FedWatch Tool. The US NFP data is expected to provide more clues about the US interest rate outlook.