Euro stabilizes near 17-month low on French debt concerns

The euro stabilized just above its 17-month low on Tuesday, after falling sharply on Monday on concerns that the pressure on the French bond market could spread across the Eurozone.

The common currency was down less than 0.1 percent at $1.12. The euro fell to $1,116 in the previous session, reaching its lowest level since May 2025. Since last week, the loss has exceeded 1 percent.

France's high public debt and political gridlock are at the center of the pressure on the euro.

While the sharp sales in French bonds increased borrowing costs, concerns that this move could spread to other Euro Zone countries also increased.

The decision to hold an early election in Spain was another topic that increased the political pressure on the common currency.

Commonwealth Bank of Australia Strategist Joseph Capurso stated that his expectations for the Euro were negative and that the parity could fall below $ 1.10.

Capurso stated that in order for the Euro to strengthen again, there must be a sharp decline in oil prices or France must start taking its budget deficit under control.

While French bond interest rates decreased by approximately 0.1 points on Tuesday, the limited decline in oil prices also eased the pressure on the market somewhat.

While yields decrease when bond prices rise, the sharp increase in France's borrowing costs in recent days has become one of the most important risk topics in the Euro Zone.

On the dollar side, the strong trend continued.

While US Treasury bond yields remained high, supporting the dollar, the dollar index was traded at 102.16. The index had reached its highest level of the last 18 months at 102.53 in the previous session.

Although the expectation that the Fed will raise interest rates in October has weakened following the employment data that was below expectations in the USA, the markets are pricing in that the tightening may continue in subsequent meetings.

According to CME FedWatch Tool, while the probability of an interest rate increase in October is 22 percent, this rate increases to approximately 85 percent for December.

While service sector activities in the USA slowed down in September, strong domestic demand increased the pressure on supply chains.

The increase in the prices paid by companies for inputs has strengthened expectations that inflation will remain high next year.

ING Foreign Exchange Strategist Francesco Pesole stated that the dollar started the week strongly and that the weakness in the euro and the rise in global bond yields continued to support the dollar.

The dollar increased by 0.2 percent against the Japanese Yen to 158.21.

While sterling remained flat around $1.323, the Australian dollar fell 0.1 percent to $0.696.

The Bank of Japan is expected to give a message this month that core inflation has reached the target of approximately 2 percent, opening the door to a new interest rate increase in the coming months.