Euro skids toward fifth weekly fall but selling pressure slows

The euro slid toward its fifth consecutive weekly decline on Friday, though the pace of selling began to slow as France's debt market stabilized and a dip in US yields tempered the dollar's rally. The common currency hit a 17-month low of $1.1161 earlier in the week, driven by concerns over France's massive debt load and the political challenges of implementing budget cuts. Since then, the euro has rebounded to $1.1211, marking a 0.3% weekly drop and over a 3% decline against the dollar over the past five weeks.

The euro against the British pound also slipped 0.3% to trade near a 16-month low of 84.74 pence, while the euro against the Swiss franc steadied around 0.9324 francs per euro after its biggest weekly decline in 17 months. Analysts cautioned that the current moves may be stretched, with Matt Simpson, a senior analyst at StoneX, noting that such significant moves occur only a few times a year for the euro. He advised caution as the currency approached these lows.

France's far-right presidential candidate Marine Le Pen unveiled plans to reduce the budget deficit, which markets viewed favorably due to the left-wing rival Jean-Luc Melenchon's request for the central bank to cancel government debts. However, ongoing protests in France by students over education conditions and concerns about social spending have created a feedback loop between France's bond sell-off and declining market sentiment.

Macquarie strategists Thierry Wizman and Gareth Berry warned that intensified street riots could exacerbate bond yield spreads.

Meanwhile, the US dollar showed muted gains as US yields approached their biggest weekly drop in about three months, with the market rallying strongly overnight. The Japanese yen experienced its fourth consecutive weekly decline, but the momentum was weak as it steadied around 158 yen to the dollar. Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities, described the dollar as being in a precarious position, buoyed by the weakness of the euro and yen.

The Australian dollar hovered around $0.6960, while the British pound stood at $1.3233. New Zealand's dollar faces its seventh straight weekly decline, attributed to its low interest rate of 2.75% compared to the Federal Reserve's rate range of 3.75% to 4%. The New Zealand dollar is nearing its 2025 low of $0.5485.