The euro fell to a 17-month low against the US dollar on Monday as growing concerns over France’s fiscal position and a sharp sell-off in government bonds raised fears of wider financial stress across the eurozone. 

The euro dropped to $1.1161 in Asian trade, its weakest level since May 2025, before recovering slightly. The latest weakness came after four consecutive weekly declines in the single currency. 

Investors have become increasingly concerned about France’s ability to control its budget deficit, particularly with political uncertainty rising ahead of the country’s 2027 presidential election. The government’s minority position has also raised doubts about whether proposed spending cuts can be implemented smoothly.

French government bonds have been at the centre of the market pressure. The yield on France’s 10-year bond moved close to 5%, its highest level since 2002. The spread between French and German 10-year bond yields widened to around 146 basis points on Monday after reaching a much higher level last week, reflecting the rising risk premium investors are demanding to hold French debt.

France’s government has proposed €54 billion in fiscal tightening measures for 2027 and aims to reduce the budget deficit to 5% of GDP from around 5.4% this year. However, weak growth and political opposition have raised questions over whether these targets can be achieved. France’s financing requirement for 2027 is projected at €339.7 billion, while debt-service costs are expected to reach €72.9 billion.

The concerns are also spreading beyond France. Italian and other European bond markets have faced pressure, raising fears of renewed fragmentation within the eurozone. Such developments could complicate the European Central Bank’s efforts to manage inflation while preventing excessive stress in sovereign debt markets.

The US dollar, meanwhile, has remained firm despite weaker US employment data. The disappointing jobs figures have reduced expectations of a Federal Reserve rate hike in October, but the dollar continues to benefit from relatively high US Treasury yields and its safe-haven status.

For global markets, the euro’s decline highlights how fiscal and political risks in a major European economy can quickly spill into currency and bond markets. Investors will closely watch French budget negotiations, sovereign bond spreads and signals from the ECB for signs of whether the pressure could widen across the region.

Ready to invest like a pro? Tradz by EquityPandit app equips you with 100+ Free tools and knowledge you need to succeed. Download the Tradz by EquityPandit app and gain access to daily stock lists and insightful market analysis and much more!