France Debt Hits Euro
The euro fell to a 17-month low on Monday as concerns over France’s fiscal position and political uncertainty pushed investors away from French assets.
The single currency fell as much as 0.8% to $1.1160 before recovering some ground. The euro has now declined for four consecutive weeks and lost around 2.5% during September.
French Bond Market Comes Under Pressure
Investors have become increasingly concerned about France’s rising debt and political gridlock ahead of next year’s presidential election.
The premium investors demand to hold French 10-year government bonds over German Bunds rose above 150 basis points on Friday, raising concerns about the possibility of broader stress across European markets.
French 10-year OAT yields rose another 6 basis points on Monday to 4.9196%, while German 10-year yields fell around 1 basis point to 3.4466%.
Dollar Gains as Euro Weakens
The euro’s decline provided additional support for the U.S. dollar. The dollar index rose 0.3% to 102.194, while sterling slipped around 0.1% to $1.3233.
At the same time, investors sharply reduced expectations of an October Federal Reserve rate hike following weaker U.S. employment data.
Markets were pricing only an 18% probability of an October Fed hike, compared with 64% the previous week.
