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The euro fell sharply on Monday, hitting a 17-month low against the US dollar as mounting concerns over France’s fiscal outlook and a global bond market selloff drove investors toward safer assets.
EUR/USD dropped to $1.1161 during Asian trading, its weakest level since May 2025, after recording four consecutive weekly declines. The euro was last down 0.67% at $1.1178. It also weakened 0.4% against the Swiss franc and 0.34% against sterling.
Investors have grown increasingly concerned about France’s high debt levels and potential political gridlock ahead of the April 2027 elections. Brent Donnelly, president of Spectra Markets, said political risks expected to intensify closer to the election have arrived earlier than anticipated, while questioning the credibility of new budget commitments ahead of a possible change in government.
The pressure follows last week’s global bond rout, which pushed borrowing costs to multi-decade highs as surging oil prices fueled inflation concerns. French bond futures fell another 0.13%, remaining close to recent record lows.
US Treasury markets stabilized somewhat, with the 10-year yield at 5.262% after reaching a 24-year high last week. Higher Treasury yields and safe-haven demand helped support the dollar despite weaker US employment figures.
The US dollar index rose 0.47% to 102.37. Sterling declined 0.24% to $1.32064, while the Japanese yen traded at 157.92 per dollar.
Friday’s US jobs report showed employment growth slowed more than expected in September, reducing expectations for an October Federal Reserve rate hike. Markets now see a 78% probability that the Fed will leave rates unchanged this month, up from 36% a week earlier, according to CME FedWatch.
Traders still expect a December hike followed by two additional increases in the first half of 2027. However, some analysts believe those expectations are too aggressive.
Jefferies strategist Mohit Kumar said the firm expects only one additional rate hike each from the Federal Reserve and European Central Bank, arguing that either lower oil prices or weaker economic growth could limit the need for further monetary tightening.
