The euro fell to its lowest level against the dollar since May 2025 on Monday as investors reacted to rising French borrowing costs, political uncertainty and doubts over Paris’s ability to stabilise its public finances before next year’s presidential election.
The euro fell to a 17-month low against the US dollar on Monday as renewed pressure on French government debt raised concern over the fiscal position of the eurozone’s second-largest economy.
The single currency dropped as far as $1.116 during trading, its weakest level since May 2025, before recovering part of the fall. By late Monday it was trading at around $1.121, still lower on the day.
The move followed a sharp sell-off in French government bonds and a widening gap between French and German borrowing costs.
According to market data published on Monday, the spread between French government debt and equivalent German Bunds had approached 160 basis points on Friday, its widest level since the eurozone sovereign-debt crisis in 2011.
The gap subsequently narrowed, but the scale of the movement has drawn attention back to France’s public finances.
French debt is already close to 120 per cent of gross domestic product and is expected to continue rising.
Investors are now assessing whether Prime Minister Sébastien Lecornu’s minority government can secure sufficient parliamentary support for measures intended to put the budget on a more sustainable path.
That challenge is becoming more difficult as France approaches its 2027 presidential election.
Spending cuts and tax increases are politically sensitive even under stable parliamentary conditions. Lecornu’s administration does not have an outright majority in the National Assembly, while opposition parties have challenged several elements of the government’s fiscal programme.
The French economy itself is providing little additional room.
Revised national accounts examined by EU Today showed that the economy failed to grow during the second quarter, while household purchasing power weakened and investment declined.
Slower growth makes deficit reduction harder because tax revenues tend to grow more slowly while welfare and debt-servicing costs remain high.
Bond markets have also changed the calculation.
For much of the period following the eurozone debt crisis, France was able to borrow at historically low rates. Higher interest rates now mean maturing debt has to be refinanced at greater cost.
France’s debt burden is therefore rising at the same time as the price of servicing it increases.
The euro’s fall on Monday shows that those concerns are no longer confined to the French bond market.
Currency traders are also assessing whether fiscal pressure in France could affect confidence in the wider euro area.
The comparison with the sovereign-debt crisis of 2010–12 should nevertheless be treated cautiously.
France remains one of Europe’s largest and most diversified economies, and the eurozone now has institutional mechanisms and European Central Bank instruments that did not exist at the beginning of the earlier crisis.
There is also no indication that France is unable to finance itself.
What markets are pricing is an increase in the risk attached to holding French debt and growing uncertainty over the country’s medium-term fiscal trajectory.
The euro has now fallen for four successive weeks against the dollar and has lost more than three per cent over that period.
US monetary policy is contributing to the movement. Persistent inflation indicators have supported the dollar even as expectations of an immediate Federal Reserve interest-rate increase have declined.
For Europe, however, Monday’s trading was dominated by France.
French fiscal policy has been a domestic political dispute for much of the past year. The widening bond spread and the euro’s fall show that it is increasingly becoming a eurozone market issue.
Login
