The euro fell to its lowest level in 17 months against the U.S. dollar on Monday as concerns over France’s growing debt problems and fragmentation across European bond markets triggered a broad risk-off move.
The single currency dropped around 0.7% to $1.1170 after briefly touching $1.1160. That marked its weakest level since May 2025.
The decline also extended the euro’s losing streak as investors continued to reduce exposure to French assets amid rising fiscal and political uncertainty.
Euro Weakness Pushes U.S. Dollar Higher
The sharp decline in the euro helped strengthen the U.S. dollar against other major currencies.
The U.S. Dollar Index, which measures the greenback against six major peers, climbed about 0.5% to 102.48.
The dollar advanced despite weaker U.S. economic data, as concerns surrounding European financial markets increased demand for safer assets.
The euro also weakened against the Japanese yen and Swiss franc. Against the yen, the currency traded near its lowest level since November 2025.
ING strategist Chris Turner said investors are likely to remain cautious toward French government debt in the near term.
France Fiscal Crisis Raises Contagion Concerns
France has become the main source of pressure on the euro as investors reassess the country’s fiscal outlook.
Rising public debt and political gridlock ahead of next year’s presidential election have increased concerns about the sustainability of French government finances.
French government bonds suffered a sharp sell-off. Two-year yields jumped 76 basis points during the session.
Meanwhile, the spread between 10-year French government bonds and benchmark German Bunds climbed above 140 basis points.
That was the widest gap since the Eurozone sovereign debt crisis in 2012.
Five-year French credit default swaps also rose to around 87 basis points, reflecting growing investor demand for protection against potential sovereign risk.
These developments have increased concerns that France’s fiscal problems could spread to other parts of the Eurozone.
Inflation Adds Pressure on the European Central Bank
Europe’s economic outlook is also being complicated by persistent inflationary pressures.
Higher crude oil and wholesale natural gas prices continue to push costs higher across the region.
This creates a difficult situation for the European Central Bank, which must balance inflation risks against weak economic growth and growing sovereign debt concerns.
As a result, the euro remains caught between the threat of stagflation and increasing doubts about fiscal stability across the currency bloc.
Dollar Strengthens Despite Softer Fed Expectations
The U.S. dollar has remained resilient even as investors reduce expectations for another immediate Federal Reserve interest rate increase.
Friday’s weaker-than-expected U.S. nonfarm payrolls report encouraged traders to adopt a more cautious view of near-term monetary policy.
U.S. employment increased by only 29,000 jobs in September, while previous months were revised sharply lower.
Following the report, financial markets significantly reduced expectations for an October interest rate increase.
Traders are now pricing in roughly a 78% chance that the Federal Reserve will leave rates unchanged this month. That compares with around 36% one week earlier.
Treasury Yields Continue to Support the Dollar
Despite expectations for a near-term pause from the Federal Reserve, longer-term U.S. Treasury yields remain elevated.
The benchmark 10-year Treasury yield stayed close to 5.26%.
Markets are still pricing in the possibility of several additional Federal Reserve rate increases by mid-2027 as policymakers attempt to control inflation linked to higher commodity prices.
The relatively attractive yield offered by U.S. assets continues to support the dollar.
At the same time, investors moving away from European bonds have strengthened demand for U.S. assets, giving the greenback an additional advantage over the euro.
Eurozone PMI Data Comes Into Focus
The economic calendar is relatively light at the beginning of the month, leaving investors focused on upcoming Eurozone business activity data.
Final services and composite Purchasing Managers’ Index reports will be closely watched for further signs of economic weakness.
Investors will also look for evidence of how rising energy prices are affecting companies across the Eurozone.
Any additional signs of slowing growth or persistent inflation could increase pressure on the European Central Bank and keep the euro under pressure against the U.S. dollar.
