Euro steadies near $1.12 amid French bond and US yield pressures
The euro showed signs of recovery on Tuesday, stabilizing near $1.12 after a brief downturn sparked by concerns over French government bonds. On Monday, the currency dropped to $1.116, its lowest point since May 2025, as investors worried about rising French borrowing costs spreading across the eurozone. However, a slight easing of French bond yields by around 0.1 percentage points helped calm the market and support the euro.
The euro's struggle is driven by two opposing forces: uncertainty around French politics and public finances, which makes investors demand higher returns for holding euro assets, and the allure of high-yielding US Treasury yields, which pulls capital toward the dollar. Despite softer US jobs data reducing the likelihood of an October rate hike, traders still anticipate a Federal Reserve rate increase by December, keeping the dollar strong.
Analysts like ING strategist and Joseph Capurso from Commonwealth Bank of Australia suggest that EUR/USD could dip below $1.10 without a significant shift in either French funding fears or US yield trends. Until one of these factors changes, the exchange rate may remain near its current lows.