Euro Slumps to 17-Month Low Against Dollar on French Debt and Spanish Election Risks
The single currency dropped as much as 0.8% in early trading to below $1.12, reaching its lowest level since May 2025. LSEG data shows the currency was last 0.6% lower, hitting a low not seen since May 19, 2025. Investors sold off the euro amid mounting anxiety over France’s stretched public finances and wider political uncertainty across the eurozone. The euro has fallen about 1.2% this month, contributing to an eight-cent decline from a January peak of $1.20.
Cac 40 Index Falls as French Bond Yields Widen
France’s blue-chip Cac 40 index fell by 1% as markets across Europe reacted to the fiscal pressure. In contrast, the FTSE 100 rose 0.2% and Germany’s Dax remained little changed. Sovereign debt markets saw French 10-year government yields hit their highest level since 2002 last week, before dipping back on Friday, as reported by Reuters. French 10-year yields remained below the Friday peak of 4.993%, while German yields were also little changed. This pushed the yield gap between France and Germany to its widest level since 2012.
The minority government of Prime Minister Sébastien Lecornu announced a €54bn savings drive last month aimed at curbing a budget deficit projected to reach 6.5% without action. The plan comes as President Emmanuel Macron’s administration faces protests and strikes.
However, analysts at Barclays noted that France is unlikely to meet its fiscal targets even if the draft 2027 budget is adopted. Strategists at ING added that the proposed measures would not resolve structural problems, leaving debt ratios vulnerable as Marine Le Pen’s National Rally gains ground ahead of next year’s presidential election. ING noted that no main presidential candidate has provided a detailed plan for stabilizing the debt ratio or specifying which taxes and expenditures would change.
Spain Snap Election Adds to Eurozone Uncertainty
Adding to regional pressure, Spanish Prime Minister Pedro Sánchez announced a snap election after rightwing parties blocked emergency housing legislation. Madrid’s benchmark Ibex 35 index rose by 0.5%. Rufaro Chiriseri, head of fixed income for RBC Wealth Management, told CNBC that Spanish assets had previously attracted investors due to relative fiscal stability, noting that Spanish and Portuguese debt sold off less aggressively than French or Italian bonds.
Kathleen Brooks, research director at XTB, stated that Europe took the spotlight as fiscal and political concerns hit the bloc. Meanwhile, Roberto Mialich, a currency strategist at UniCredit, warned that investors do not rule out a further decline of the euro toward $1.10 in the near term. The euro’s slide provided support for the dollar, which also gained from high Treasury yields; the dollar index rose 0.3%.
Frequently Asked Questions About the Eurozone Debt Pressures
What triggered the latest drop in the euro?
The euro fell below $1.12, hitting a 17-month low, driven by investor concerns over France’s rising debt costs, high bond yields, and political instability tied to upcoming elections and budget battles.
How wide is the current borrowing cost gap between France and Germany?
The yield spread between French and German 10-year government bonds reached its widest level since 2012, reflecting heightened investor anxiety during the sovereign debt pressures.
What deficit targets has the French government set?
Prime Minister Sébastien Lecornu’s administration aims to limit this year’s budget deficit of 5.5% of GDP down to 5% next year through a €54bn savings package involving cuts to pensions and government spending.
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