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Euro Slides to 17-Month Low as France Debt Worries Intensify
Confirmed
In Short: French debt concerns and political instability are pushing the euro to a 17-month low against the dollar, with French bond yields soaring.
French debt is projected to rise to nearly 122 percent of the country's GDP next year, despite planned spending cuts, according to multiple sources.
The euro slid to its lowest level against the dollar in 17 months on Monday, reflecting worries about France's high debt and deficits.
Research director at XTB, Kathleen Brooks, noted, “The fact that French bonds and the euro sold off last week, and the downward momentum could persist this week, is a sign that Europe is out of favor with investors and bond market vigilantes are watching developments in the eurozone closely.”
Market strategist at Tickmill Group, Patrick Munnelly, added, “France had already been under pressure due to questions over fiscal credibility and political stability.”
The CAC 40, France's leading stock index, fell by 0.9% as concerns over France's fiscal position continued to unsettle investors.
Analysts argue that France's fiscal problems are daunting, with an upcoming presidential election and a hung parliament complicating efforts to address the issues.
The yield gap between French bonds and safe-haven Bunds widened to about 150 basis points on Friday, the highest since the euro zone’s sovereign debt crisis in 2011.
The euro sank to as low as US$1.1161 in Asian hours, its weakest since May 2025, and was last down 0.47 per cent at US$1.12.
UBS analyst Giovanni Staunovo noted, “We continue to view rising government debt levels as a structural tailwind for the yellow metal,” while adding that gold has held up relatively well despite pressure from higher interest rates and a stronger U.S. dollar.
The euro's appeal as an alternative to the greenback was already fading after the Federal Reserve’s September rate hike, but last week’s sharp widening in French bond spreads dealt a further blow.
The euro has been sliding against the dollar for much of 2026, down about 5% since the start of the year.
The euro recovered some ground to trade at $1.119 after falling by as much as 0.8% to a 17-month low of $1.1160.
What this adds
The impact of political instability in France is also affecting other currencies, with the Canadian dollar finding some relief against the Euro, Yen, and Pound.
What's confirmed
- French debt is projected to rise to nearly 122 percent of the country's GDP next year, despite billions of euros in planned spending cuts.
- "The fact that French bonds and the euro sold off last week, and the downward momentum could persist this week, is a sign that Europe is out of favour with investors and bond market vigilantes are watching developments in the eurozone closely," said Kathleen Brooks, research director at XTB.
- "France had already been under pressure due to questions over fiscal credibility and political stability," said Patrick Munnelly, market strategist at Tickmill Group.
- "Europe's political risk is weighing on the euro."
- The euro slid Monday to the lowest level against the dollar in 17 months on worries about France's high debt and deficits, which have sent its government bond yields soaring.
- An underwhelming 2027 budget plan unveiled last week fanned concerns that government spending will remain high ahead of next year's presidential elections in which the far-right Marine Le Pen, seen as a fiscal populist, stands a chance of winning.
- "Spain now adds another layer of uncertainty," he added.
- Global bond markets began the week with a modest reprieve after a sharp selloff, but elevated U.S. Treasury yields and growing concerns over France’s public finances kept investors focused on the risks of higher-for-longer interest rates, government debt and renewed pressure on major currencies.
- UBS analyst Giovanni Staunovo said rising government debt remains a structural source of support for bullion.
- “We continue to view rising government debt levels as a structural tailwind for the yellow metal,” Staunovo said, noting that gold has held up relatively well despite pressure from higher interest rates and a stronger U.S. dollar.
- The same combination of fiscal concerns and higher rates is creating an even more pronounced problem in Europe.
- Investors are more questioning how easily France can restore its public finances at a time when political divisions are complicating efforts to reach agreement on spending reductions.
What's still developing
- European indices are starting the week on a slightly softer footing, although the losses are relatively contained outside of France.
- That leaves France looking like its own problem for European markets at the moment, with the spread between French and German 10-year yields widening beyond 150 bps on Friday - the largest gap since 2012.
- So while European stocks aren't exactly seeing another broad selloff at the open, elevated bond yields and renewed stress surrounding France are still keeping investors on edge.
- “Euro/Swiss franc is historically the cleanest way to hedge the eurozone fiscal risk, and we could see further downside,” said Francesco Pesole, forex strategist at ING.
- French government bonds have come under pressure, as expectations of higher policy rates and rising political uncertainty ahead of the 2027 election cast doubt on the ability of the euro area’s second-largest economy to put its public finances on a more sustainable footing.
- Sept 18 — The ringgit strengthened against the US dollar and other major currencies at Friday’s close, buoyed by improved market sentiment following easing concerns over crude oil supply, an analyst said.
- At the close, the ringgit gained against the euro to 4.6849/6901 from Thursday’s close of 4.7003/7055, rose versus the Japanese yen to 2.5829/5860 from 2.6305/6336 yesterday, and advanced vis-a-vis the British pound to 5.4543/4603 from 5.4877/4937 previously.
- A strong US Purchasing Managers' Index (PMI) report on Wednesday, higher US Treasury yields and the rebound in crude oil prices are posing a perfect storm for the Euro.
- Preliminary US S&P PMI figures released on Wednesday showed that business activity grew at its strongest pace in more than five years, with jobs and wages rising fast and input prices surging amid higher energy costs, These figures raised concerns that the US economy might be overheating, and provided additional reasons for the Federal Reserve (Fed) to tighten its monetary policy further in the coming months.
- "I've experienced a lot of things, so we will see."
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- “The (French) spread sell-off seems to increasingly feed on itself, creating a dangerous market backdrop,” he said, while adding that there was a fundamental justification for wider OAT spreads.