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The euro fell to its weakest level in 17 months on Monday, October 5, as investors weighed France’s rising public debt and uncertainty ahead of its 2027 presidential election. The common currency briefly dropped to $1.1161 in Asian trading, its lowest level since May 2025, and was later down 0.67% at $1.1178, Reuters reported.
France-specific concerns added pressure to a market already unsettled by a sharp global bond sell-off and high U.S. Treasury yields. Investors are watching whether France can pass a budget and contain its deficit, while the widening gap between French and German government bond yields has raised concern that stress could spread across European markets.
French fiscal risks move to the foreground
France’s public debt reached €3.596 trillion at the end of June, equal to 119% of gross domestic product, according to figures from national statistics institute INSEE. The ratio exceeded its previous pandemic-era peak of 117.8% and was the highest since 1946, when France was recovering from World War II.
Debt has continued to rise as public spending exceeds revenue, and higher interest rates have made refinancing more expensive. The government’s latest projections put debt at 119.3% of GDP by the end of 2026 and 121.7% in 2027. Interest payments are expected to reach €91 billion in 2027, according to Finance Minister Roland Lescure, adding pressure to an already constrained budget.
The government’s 2027 budget proposal aims to reduce the deficit to 5% of GDP. However, its passage faces a difficult parliamentary debate, and the approaching presidential campaign has heightened uncertainty about whether proposed fiscal measures will survive political negotiations. Markets have also had to absorb French 10-year borrowing costs near 4.8% in recent trading, a level not seen since the global financial crisis, according to Le Monde’s reporting.
Election uncertainty complicates the outlook
Investors are concerned that political divisions could make it harder to deliver lasting spending reductions or revenue measures. The election is scheduled for April 2027, and uncertainty over a possible change in government has led some market participants to question whether current budget commitments will remain credible.
Brent Donnelly, president of foreign-exchange trading at Spectra Markets, told Reuters that political risk anticipated later in the election cycle had arrived earlier. He also questioned how much confidence markets could place in budget promises made before a potential change in power. The currency’s decline reflects these concerns alongside broader movements in global yields, rather than a single new announcement from Paris.
France’s debt is high by euro-area standards, though it is not the region’s highest. The Associated Press reported that euro-area government debt stood at 88.9% of GDP at the end of the first quarter of 2026, while Greece and Italy had higher ratios than France. The scale of French borrowing matters to investors because France is a large euro-area economy, and changes in its perceived credit risk can influence the broader market’s assessment of the currency bloc.
Dollar gains despite softer U.S. jobs data
The dollar strengthened even after weaker-than-expected U.S. jobs growth in September reduced market expectations for a Federal Reserve rate increase this month. Reuters cited CME FedWatch pricing showing a 78% probability of the Fed holding rates steady in October, compared with 36% a week earlier.
Still, U.S. yields remained elevated following a surge late last week, supporting demand for dollar assets. Matthew Ryan, head of market strategy at Ebury, told Reuters that higher Treasury yields were bolstering the dollar’s appeal and that the broad debt sell-off was also encouraging flows into the U.S. currency as a perceived haven.
Expectations for later Fed moves remained less settled. Traders continued to price in a possible December increase, while analysts cautioned that markets could be anticipating more tightening than central banks ultimately deliver. Jefferies strategist Mohit Kumar said the firm expected one rate increase each from the Fed and European Central Bank, but argued that elevated oil prices could also weigh on growth.
What investors are watching next
Monday’s European data calendar included September services and composite purchasing managers’ indexes for France and Germany, as well as euro-area producer prices for August. These releases were scheduled indicators, not confirmed explanations for the euro’s early decline.
Currency and bond markets will also continue to track the French budget debate, government borrowing costs and the spread between French and German yields. As of Monday’s reporting, Reuters described concern about the possibility of market contagion, not evidence that such contagion had already occurred. The euro’s immediate direction therefore remained exposed to both French political developments and the wider repricing of global interest rates.
