Euro falls to 17-month low against dollar amid French debt fears

The euro has slumped to the lowest level against the dollar in 17 months amid growing concern France’s debt position could threaten the stability of the wider single currency bloc.

The single currency fell as much as 0.8% against the dollar in early trading on Monday to below $1.12, its lowest level since May 2025, before recovering slightly. It has slumped by about 1.2% this month, accelerating a drop of about eight cents against the greenback from a peak of $1.20 in January.

Investors said the sell-off in the euro was fuelled by concerns over France’s rising debt costs as the government battles to control its stretched public finances in the run-up to next year’s presidential election.

France’s blue-chip Cac 40 index of leading company shares fell by 1% on Monday, as markets elsewhere across Europe rallied. The FTSE 100 was up 0.2%, while Germany’s Dax was little changed.

Monday’s announcement of a snap election in Spain by the socialist prime minister, Pedro Sánchez, after rightwing parties torpedoed emergency housing legislation last week has also fuelled eurozone uncertainty. Madrid’s benchmark Ibex 35 index rose by 0.5%.

“Europe is taking the spotlight at the start of the week, as fiscal and political concerns hit the bloc,” said Kathleen Brooks, the research director at XTB. “France is the epicentre of the concerns; however, Spain is also set to get ready for an early election, which is adding to investor worries.”

Amid a global sell-off in sovereign debt as the Iran war rattles markets, the yield – in effect the interest rate – on French 10-year government bonds last week hit the highest level since 2002, before dipping back on Friday.

This pushed the gap between France and Germany’s borrowing costs, an important measure of investor concern, to its widest level since 2012 at the height of the eurozone sovereign debt crisis.

Investors are focused on Paris’s fiscal position and concerns that the presidential election and a hung parliament – with Marine Le Pen’s far-right National Rally party gaining ground – could make it tougher for the government to curtail a yawning budget deficit.

The minority government of the French prime minister, Sébastien Lecornu, announced plans last month for a €54bn (£45.8bn) savings drive to curb borrowing levels, setting the stage for a fierce political battle.

With President Emmanuel Macron’s centrist administration under pressure amid strikes and protests across the country, the budget measures involve cutting pensions spending and funding for government departments, excluding defence.

Lecornu said the savings would result in limiting a budget deficit of 5.5% of GDP this year to 5% next year. He warned that without action the shortfall between public spending and revenue could reach 6.5%.

However, investors fear political pressures could derail fiscal consolidation, threatening to push up borrowing and adding to France’s debt pile at a time of soaring government borrowing costs.

Analysts warned the stresses in the French bond market could spread to other countries in the euro area, stoking fears over a return to the dynamics of the 2010s sovereign debt crisis.

It comes amid concerns over the test facing the European Central Bank from mounting inflationary pressures from the war in the Middle East and the risk France’s debt problem spreads throughout the euro area.

Roberto Mialich, a currency strategist at the Italian bank UniCredit, said: “Investors still do not rule out riding a further decline of the euro, making a retest of $1.10 possible in the near term.

“This is also because growing political tensions across the eurozone (primarily in France and Spain) and fears of contagion across the European sovereign debt market are putting pressure on the euro.”