Euro at 17-month low, dollar near pre-Liberation Day highs

The euro hit a 17-month low against the US dollar on Monday, dropping as concerns grew over France's capacity to control its budget deficit and following a significant sell-off in bond markets the previous week, according to the wire service report. This decline was fueled by worries about a potential resurgence of sovereign debt crisis dynamics in the euro zone.

French government bonds faced pressure due to expectations of higher interest rates and heightened political uncertainty ahead of France's 2027 presidential election, which cast doubt on the ability of the second-largest economy within the euro area to stabilize its public finances. The yield gap between French bonds and German government bonds, which serves as a gauge for the risk premium investors demand for French debt, widened to approximately 150 basis points, marking the highest level since the euro area's sovereign debt crisis in 2011.

Later, it eased slightly to 140 basis points, trading at 145.50. Hauke Siemssen, a strategist at Commerzbank, noted that recent bond market dynamics were becoming increasingly worrying and somewhat reminiscent of a sovereign debt crisis, citing the acceleration of bond spreads and a flight to quality as clear indicators.