The euro fell to a 17-month low against the dollar amid French fiscal concerns and renewed pressure on European bonds, but selling eased as markets digested Fed policy signals and oil price fluctuations.
The euro slid to a 17-month low of $1.1161 on Monday, as French government bonds faced renewed scrutiny over fiscal challenges and energy costs, while the U.S. dollar held gains following the Federal Reserve’s recent policy meeting minutes, according to Yahoo Finance. The common currency later rebounded to $1.1211, marking a 0.3% weekly decline but signaling waning bearish momentum.
French Debt Pressure Rises
French 10-year bond yields surged 11.9 basis points to 4.8696% on October 7, reflecting growing anxiety over the country’s fiscal trajectory. The case in Europe is that for a while they've operated a bit in a welfare-state type mode, spending a lot of money, not really bringing in a lot of revenue, and it's finally biting them,
said Juan Perez, senior director of trading at Monex USA in Washington, citing broader structural challenges across the continent.
French Finance Minister Roland Lescure told the Wall Street Journal in an interview that France will be “strategic” in its approach to issuing new debt, while Bank of France head Emmanuel Moulin downplayed immediate default risks. However, analysts warned of a feedback loop between fiscal stress and social unrest. France’s bond sell-off and the social unrest are now operating in a feedback loop,
noted Macquarie strategists Thierry Wizman and Gareth Berry in a note to clients, according to Euronext.
French students staged a blockade of high schools and marched through cities on Thursday, marking the latest wave of protests over education conditions, as the government struggles to meet social spending demands while avoiding market downturns. Marine Le Pen, the far-right presidential candidate, unveiled proposals this week to reduce the budget deficit, a move that markets viewed as comforting, especially since her hard-left opponent Jean-Luc Melenchon has called for the central bank to cancel government debts, as reported by Yahoo Finance.
Dollar Strength and Fed Policy Signals
The U.S. dollar index rose 0.32% to 102.24, bolstered by mixed messages from the Federal Reserve. While some participants
in the Fed’s latest meeting saw rate hikes as necessary to counter energy-driven inflation, a more hawkish core argued for caution. The market now prices in an 83% chance of a rate hike at the Fed’s December meeting, down from about 38% a week earlier, per CME FedWatch.
Recent statements from multiple Fed officials have shown support for further rate hikes, but Federal Reserve Bank of New York President John Williams and Vice Chair Philip Jefferson recently advocated for caution in pursuing additional rate increases, as per Yahoo Finance. Energy prices also impacted the U.S. dollar, as oil prices fluctuated following the International Energy Agency’s decision to accelerate the release of oil reserves and focus on diesel to address record-high fuel prices. We already kind of understand the dynamic that in a time when it's difficult to access energy resources, the US dollar is going to spike,
Perez added.
The euro’s decline pressured other currencies, with the British pound weakening 0.42% to $1.3216 and the Japanese yen weakening 0.09% to 157.95 against the dollar. The Australian dollar hovered at $0.6960, while the New Zealand dollar is experiencing its longest losing streak in over four years, trading at $0.5601 amid low interest rates. Ayano Sato, the Bank of Japan’s new policymaker, stated in a Kyodo news agency interview that she endorses the concept of incrementally increasing interest rates, as reported by Euronext.
Currencies React to Euro’s Decline
My take is all the moves are pretty stretched,
said Matt Simpson, senior analyst at StoneX in Brisbane, citing the euro’s moves. He warned investors to tread really carefully at these lows.
Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities in Singapore, echoed this sentiment, stating the dollar sat in a “precarious pole position, flattered by a dismal euro and yen,” according to Euronext.
The euro/sterling cross has declined 0.3% this week, reaching a 16-month low of 84.74 pence. The euro/Swiss cross stabilized at approximately 0.9324 francs per euro following its most significant weekly decline in 17 months. The New Zealand dollar is experiencing its longest losing streak in over four years, poised for a seventh consecutive weekly decline due to its low interest rates of 2.75%, which are significantly lower than the Fed’s 3.75% to 4% funds rate, as per Yahoo Finance.
Grain Market Volatility and WASDE Reports
Grain markets experienced risk-off selling and profit-taking ahead of the September WASDE report, according to Mike Castle with StoneX. The risk off selling was tied to profit taking in the grain markets ahead of the September WASDE on Friday,
Castle said, as reported by agweb.com. Grain markets were lower on Wednesday despite sharply higher crude oil, the Black Sea war escalating and flash export sales, according to agweb.com.
Randy Martinson of Martinson Ag attributed risk-off selling in the grains to harvest pressure and report squaring, noting that market positions ahead of the October WASDE contributed to declines. Missouri, Michigan, and Ohio were the only states to see increases, reflecting the wet conditions in the Eastern Midwest and dry conditions in the West, according to agweb.com.
StoneX’s analysis highlighted that the grain markets faced pressure from both profit-taking and harvest-related uncertainties. Missouri, Michigan, and Ohio were the only states to see increases,
Castle noted, as reported by agweb.com. This pattern mirrored last year’s conditions, with similar regional disparities in crop performance.
Fragile Balance Between Politics and Economics
With the French election looming in 2027 and global central banks navigating inflation, markets remain cautious. An intensification of the street riots could lead to higher bond yield spreads,
the Macquarie team warned, underscoring the fragile balance between political and economic forces.