Euro bounces as decline in French bond yields cools debt jitters

On Tuesday, the euro surged as falling French bond yields reduced concerns about strain in the euro zone's debt markets, marking its strongest daily gain in seven weeks. The currency climbed 0.35% to $1.126, recovering from a 17-month low of $1.116 on Monday. Meanwhile, the dollar index fell 0.32% to 101.83, signaling a potential seven-week low.

French debt markets experienced increased pressure as politicians grappled with budget deficits ahead of a contentious 2027 election. French 10-year yields dropped 11.4 basis points to 4.7506%, aided by a decline in energy prices. The key yield's decline stemmed from a Middle Eastern crude export surge and a G7 release of emergency oil reserves, which eased supply concerns.

Spain's decision to hold a snap election added to the recent euro pressure. Energy price drops, in turn, helped French and Italian bond yields fall, contributing to the euro's recovery. Meanwhile, the pound sterling experienced its biggest daily gain since August 19, climbing to $1.3275. The yen, however, remained an exception, as the dollar rose 0.11% against the Japanese currency.