Euro tumbles as French debt fears roil markets

The euro slumped to a 17-month low as fears of French fiscal instability rippled through currency markets. Japanese funds sold off French government bonds in droves, while hedge funds added to the selling pressure. Spain's surprise election announcement deepened political uncertainty across Europe. On Asian markets, the euro-dollar rate hit $1.1161, its lowest point since May 2025, before stabilizing around $1.12 in London trading.

The sell-off centered on French government bonds. The 10-year yield surged to 4.92%, nearing levels last seen in 2002, with the biggest weekly jump in 17 years. German bund futures rose slightly as investors sought safety. The gap between French and German 10-year yields widened to 152 basis points, the largest since the 2011 European debt crisis.

Japan's exit from French debt stands out. As the third-largest foreign holder of French bonds, Japanese investors offloaded their entire positions. France's high reliance on foreign capital, 55% of its debt held abroad, exacerbates market sensitivity. Political risks loom large with upcoming elections and concerns over fiscal discipline.

Spain's snap election added to the turmoil, while market speculation swirls around potential European Central Bank intervention. Opinions diverge on the euro's outlook, with some warning of a debt crisis and others seeing limited downside for now.