EURUSD hits lows as investors sell French bonds

On Monday (October 5), the euro-dollar exchange rate hit a 17-month low. Investors, already worried about global government bond yields and rising oil prices, are now even more worried about euro zone bonds, especially French bonds.

Since 2026, the euro has mostly been in decline against the US dollar, down about 5% from the beginning of the year. The exchange rate on Monday was $1.12 per euro, the lowest since early 2025.

Growing doubts about the long-term stability of French bonds led investors to accelerate selling of French bonds last week.

France has a long history of fiscal problems. After President Macron took office in May 2017, he cut taxes on a large scale and increased public spending.

Today, France’s debt-to-GDP ratio is close to 118%. The country continues to roll out unbalanced budgets. Its annual budget deficit now regularly exceeds 5%. Before Macron took office, the ratio was 3.4%.

Many investors have turned to options seen as safer, such as German government bonds.

Last week, the gap between the yields on 10-year French and German government bonds reached its highest level since the euro zone debt crisis. This indicator is an important index to measure the EU's fiscal stability.

The outside world therefore called on the European Central Bank to take measures to prevent concerns about French bonds from turning into panic. Deutsche Bank analyst Jim Reid said on Monday that he expected political policymakers to continue to pay attention to the trend of the dollar-euro exchange rate, but would not take measures to intervene in the market at this time.

Both economic and political pressures create uncertainty in the market. As far as the situation in France is concerned, the outside world is worried that the center-right Marine Le Pen will be elected president in the 2027 election. In Germany, the rise of the populist party AfD has also caused similar concerns.

Ricardo Amaro, a euro zone economist led by Oxford Economics, told DW that a weaker euro could exacerbate inflation problems. "Further euro weakness could exacerbate inflation, which is already expected to continue into 2027."

A weaker euro could increase the cost of imported goods, especially in dollar terms. Global commodities such as oil and natural gas are priced in U.S. dollars, which means energy prices are likely to continue to soar, as are U.S. imports.