The single currency fell as low as $1.1161 during Asian trading, its lowest level since May 2025, extending a losing streak that has now reached four consecutive weeks. It was last down 0.67% at $1.1178, while also losing ground against the Swiss franc and British pound.
Investors have increasingly focused on France’s high debt levels and the prospect of political deadlock ahead of next year’s election, adding to pressure on French government bonds and the euro.
"The French politics trade that many expected would escalate this winter as April 2027 elections neared … is here now," said Brent Donnelly, president of foreign exchange trading at analytics firm Spectra Markets.
"It’s not completely obvious what might fix things here as any budget promises made by the French government now are not super credible with a change of power coming soon."
The pressure on the euro comes after a turbulent week in global bond markets, where borrowing costs surged to multi-decade highs. French debt was particularly hard hit as investors weighed the potential inflationary impact of sharply higher oil prices alongside concerns about government finances.
French bond futures fell 0.13% on Monday, hovering close to record lows reached in recent weeks.
The turmoil has also affected US Treasury markets. The yield on the benchmark 10-year US Treasury note stood at 5.262%, after briefly climbing to a 24-year high last week and sending shock waves through global financial markets.
Dollar Gains as Investors Seek Safety
While the euro bore the brunt of the latest market stress, the US dollar emerged as one of the major beneficiaries.
Sterling fell 0.24% to $1.32064, while the Japanese yen traded at 157.92 per dollar. The dollar index, which measures the US currency against six major currencies, rose 0.47% to 102.37.
The dollar’s strength reflects both higher US Treasury yields and a broader flight to safety as investors reassess government debt markets around the world.
"The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fuelling safe-haven flows into the greenback," said Matthew Ryan, head of market strategy at Ebury.
Strategists at OCBC said continued volatility in interest rates could put further pressure on carry trades and economically sensitive currencies, including the euro. Traditional safe-haven assets such as the dollar and Swiss franc, they said, are likely to remain supported while uncertainty persists.
Fed Rate Expectations Shift
The dollar’s recent advance has also been driven by expectations that the US Federal Reserve could raise interest rates in the coming months. However, those expectations were challenged by weaker-than-expected US employment data released on Friday.
US job growth slowed more sharply than economists had anticipated in September, prompting traders to reduce bets on an imminent rate increase.
Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore, said the latest employment figures suggested that the US labour market was not overheating even as inflation remained above the Federal Reserve’s 2% target.
He expects the central bank to leave interest rates unchanged this month.
Markets are now pricing in a 78% probability that the Fed will hold rates steady in October, up sharply from 36% a week earlier, according to the CME FedWatch tool. Traders continue to expect a rate increase in December, followed by two further hikes during the first half of 2027.
However, some analysts believe those expectations have gone too far.
Jefferies strategist Mohit Kumar said the firm’s base case was for only one rate increase from each of the Federal Reserve and the European Central Bank.
"By the time we come to March, either oil prices would be lower or if we are wrong and oil prices are elevated, we are talking slower growth," he said.
"In either scenario, we do not see central banks delivering the rate hikes currently priced in."
For currency markets, the conflicting forces leave investors navigating an unusually uncertain environment: Europe is facing renewed fiscal and political concerns, while the United States is balancing persistent inflation against signs of a cooling labour market.
Until there is greater clarity over France’s fiscal outlook, global bond-market stability and the Federal Reserve’s next move, analysts expect volatility in major currencies to remain elevated.