The euro fell to a 17-month low against the dollar as Asian stocks started the week higher. Investors cut expectations for another Federal Reserve rate hike in October after weaker U.S. job growth and downward revisions to data for the previous two months.
The euro fell more than 0.8% to $1.1161 before partially recovering losses to trade at $1.1178. The common European currency lost about 2.5% in September.
French debt adds pressure to the euro
The main factor in the sell-off is concerns about France's high public debt and the political deadlock in the country ahead of next year's presidential election. The premium that investors demand to hold 10-year French bonds over German bonds of the same maturity has exceeded 150 basis points.
“We are starting to see cracks in the general sentiment towards the euro“, said Bart Wakabayashi, head of the State Street division in Tokyo. According to him, institutional investors are selling the euro against the dollar “very aggressively“.
Against this backdrop, the dollar index rose 0.5% to 102.39 points. The British pound fell 0.23% to $1.3207, while the yen weakened 0.15% to 158.10 yen per dollar.
Markets cut bets on Fed move
The probability that the Federal Reserve will raise interest rates in October has fallen below 20% from 64% a week earlier, data from the CME FedWatch tool showed. However, market participants continue to expect a possible increase in December.
“Labor market conditions are generally solid, but the downward revisions suggest that the U.S. economy lost jobs in two of the first nine months of the year,“ said Jose Torres, senior economist at Interactive Brokers.
Japan's Nikkei rose 2%, while the MSCI Asia Pacific Index outside Japan rose 0.9%. S&P 500 futures fell 0.1%, Nasdaq was little changed and FTSE 100 futures rose 0.26%.
Oil falls on tighter supply
Oil prices fell as rising Middle Eastern crude exports and the release of strategic reserves by G7 countries boosted supply, offsetting concerns about further damage to oil infrastructure in the Gulf region.
Brent futures fell 0.5% to $101.75 a barrel, while U.S. light crude fell 0.9% to $90.29. Gold fell 0.24% to $4,132.33 per troy ounce.