Euro plummets against US dollar: has the next crisis begun?

The euro slipped to a 17-month low against the dollar on Monday, driven by fears over eurozone debt, especially in France, along with broader concerns about global government bond yields and soaring oil prices. Since the beginning of the year, the euro has been on a downward trend, losing around 5% of its value. On Monday, it reached $1.12, the lowest point since early 2025.

Ricardo Amaro, an economist at Oxford Economics, explained that the overall decline is due to investors reassessing expectations of higher US Federal Reserve interest rates amid rising global bond yields. However, he believes the recent sell-off was specifically triggered by concerns over France's fiscal risk. French 10-year government bonds saw their yield climb to a 5% level, reflecting investor worries about the country's long-term financial stability.

France has faced fiscal challenges since President Emmanuel Macron took office in 2017, with public spending increasing and substantial tax cuts introduced. Consequently, France's national debt has soared over €1 trillion, pushing its debt-to-GDP ratio to nearly 118%. The country's fiscal imbalance is evident, with annual budget deficits regularly exceeding 5%.

This, combined with low eurozone growth rates and surging energy prices, has led many investors to seek refuge in perceived safer options like German government debt. The widening gap between French and German 10-year bond yields, a key indicator of EU financial stability, has fueled concerns about a potential eurozone crisis. Deutsche Bank's Jim Reid warned of a "mini-panic" when the spread between French and German bonds became excessively wide, but Amaro cautioned against making things worse for France's bond yields.

The ECB faces a challenging task in addressing the currency issues without exacerbating the situation. While many observers are wary of a new eurozone crisis, others, like BNY's Geoffrey Yu, dismiss the comparison to past events. Amaro emphasizes the need for careful monitoring of the situation, as further interest rate hikes from the ECB and persistent inflation could compound the challenges faced by France and the wider Eurozone.