The US dollar strengthened on Monday, supported by a weaker euro and renewed selling pressure in global bond markets as political unrest in France heightened concerns over European financial stability.
The US Dollar Index (DXY) gained 0.2% to 102, recovering after its first weekly decline in five weeks. The rebound came as investors reassessed Federal Reserve interest rate expectations amid persistent inflation pressures and rising Treasury yields.
The euro fell 0.3% to $1.1210 as escalating protests across France raised fears about the country's fiscal outlook. Violent demonstrations over rising living costs and strained public services resulted in clashes with police and widespread property damage, adding pressure on President Emmanuel Macron ahead of the 2027 presidential election.
French government bond yields surged, while spreads over German Bunds widened as investors demanded higher compensation for holding French debt. Credit default swap costs also remained near multi-year highs, reflecting growing concerns about sovereign credit risk.
Macquarie strategist Thierry Wizman warned that prolonged instability could trigger further euro selling and potentially force European Central Bank intervention if capital begins leaving France.
The bond market turmoil extended to the United States, where the 10-year Treasury yield climbed 4.5 basis points to 5.145%, while the two-year yield increased four basis points to 4.776%.
Meanwhile, stronger-than-expected US inflation data initially fueled expectations of another Federal Reserve rate hike. However, those expectations eased after Fed Chair Kevin Warsh avoided providing clear guidance on future monetary policy decisions.
In Asia, the Japanese yen weakened to 158.53 per dollar, keeping traders alert for possible currency intervention by Japanese authorities. Bank of Japan Governor Kazuo Ueda reiterated that underlying inflation was approaching the central bank's 2% target, supporting expectations of gradual monetary tightening.
The Indonesian rupiah stabilized following four consecutive sessions of losses, after MSCI's proposed market downgrade triggered significant selling pressure in Indonesian equities.
Elsewhere, the Canadian dollar strengthened to 1.4110 per US dollar following September inflation data showing consumer prices rising 3.1% annually, up from 3% in August. Higher energy and gasoline prices reinforced expectations that the Bank of Canada could maintain a restrictive monetary policy stance.
With European political risks intensifying and global bond yields climbing, currency markets remain focused on central bank decisions, inflation trends, and potential foreign exchange intervention.
