Euro drops to 17-month low on France debt concerns

The euro dropped to a 17-month low against the dollar on Monday, after falling as much as 0.8% to US$1.116. This historic low was driven by concerns about France's ability to control its budget deficit, as well as a sharp decline in the bond market last week, which heightened fears of a potential sovereign debt crisis in the euro zone.

Meanwhile, US economic data showed persistent inflation pressures, further bolstering the dollar. French government bonds have been under pressure due to expectations of higher policy rates and increasing political uncertainty in the lead-up to the 2027 French election. French bonds found some respite at the start of the week, but the yield gap between French bonds and German bonds remained at a record high, widening to nearly 160 basis points - the largest since the euro zone's sovereign debt crisis in 2011. This has led some analysts to question the euro's strength at this time.