The euro deepened its decline and reached its lowest level against the dollar in 17 months, after concerns about the state of France's public finances increased worries about the spread of problems to other eurozone countries.
The single European currency fell to $1.1161 - the lowest level since May 2025. According to Reuters data, the euro fell by 0.67% to $1.1178, which is the fourth consecutive week of decline for the currency.
The pressure on the euro is increasing amid growing tensions over French public finances and concerns that political instability will make it difficult to adopt measures to limit the budget deficit.
The French Public debt reached 3.6 trillion euros at the end of the second quarter of this year, equal to 119% of GDP. According to the French statistics agency INSEE, this is the highest level of debt in France since World War II.
Political instability in France complicates the situation
France is approaching presidential elections in April 2027, and political instability further complicates the government's efforts to control public finances.
According to analysts quoted by Reuters, markets are already starting to take into account the political risk that was expected to increase only as the elections approached.
"Political tensions in France, which many expected to increase over the winter as the 2027 elections approached, have already happened", commented Brent Donnelly, president of Spectra Markets.
French bonds are also under pressure. French government bond futures fell 0.13%, remaining close to record lows.
However, the state of France's public finances is not the only factor putting pressure on the single currency.
The European economy is facing high energy costs, weak growth prospects and increasing competition from China. Low gas reserves in Europe continue to be a concern, and political uncertainty in Germany further increases risks for the eurozone.
Against this backdrop, the difference between yields on French and German government bonds is widening. This is a sign of growing investor caution regarding French debt and heightening concerns that financial stress in France could spread to other eurozone economies.
According to Reuters, if the volatility in bond markets continues, the euro could remain under pressure. At the same time, demand for currencies considered safer during market turmoil, such as the dollar and the Swiss franc, is likely to remain.
The dollar gains
While the euro loses ground, the dollar is supported by increased demand for safe assets and the high yields offered by US government bonds.
The yield on 10-year US government bonds is around 5.26%, after reaching a 24-year high last week.
"The dollar is the main winner in the current environment", commented Matthew Ryan, head of market strategy at Ebury. According to him, the higher yield on US government bonds makes US assets extremely attractive to investors.
Source: money.bg