Euro falls to 17-month low over France’s budget risks — Channel NewsAsia

In France, concerns over the government’s ability to reduce the budget deficit intensified pressure on the euro: on October 5, the currency traded at $1.1118, down 0.62%. This was the euro’s weakest level against the dollar since May 2025. Channel NewsAsia reports this, citing Reuters.

Pressure on French bonds

French government bonds came under pressure amid expectations of higher rates and political uncertainty ahead of the 2027 presidential election. This deepened investors’ doubts about the ability of the eurozone’s second-largest economy to make public finances more sustainable.

The yield spread between French bonds and German Bunds, which the market uses as an indicator of the risk premium on French debt, widened to around 150 basis points on Friday. This was the highest level since the 2011 eurozone debt crisis. The spread later narrowed to 140 basis points and was last at 145.5 points.

Commerzbank strategist Hauke Siemssen said that recent developments in the bond market increasingly resemble a sovereign debt crisis. According to him, widening French bond spreads and investors’ shift toward German Bunds are creating a dangerous market situation.

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The dollar strengthens

On Friday, the euro recorded its fourth consecutive week of declines against the dollar, its sharpest drop in about four months. Analysts noted that a sharp widening of French bond spreads following the U.S. Federal Reserve’s rate hike in September was an additional source of pressure.

The dollar index, which reflects its value against a basket of six major currencies, rose 0.39% to 102.33 points. Earlier, it reached 102.53 points, its highest level since April 10, 2025. According to CME FedWatch, traders put the probability of the Fed keeping rates unchanged in October at 78%, compared with 36% a week earlier.

Yen exchange rate

The Japanese yen strengthened by 0.10% to 157.67 per dollar. It was supported by recent verbal warnings from Japanese authorities about the currency’s weakening and by the yen’s status as a safe-haven asset. The acceleration of core annual inflation in Tokyo in September to its fastest pace in ten months also strengthened the case for further rate hikes in Japan.