The euro remained close to its weakest level in 17 months on Tuesday as investors weighed persistent concerns over France’s public finances alongside fresh political uncertainty in Spain.
The single currency had fallen to about $1.116 on October 5, its lowest level since May 2025, before recovering on October 6 as French government bond yields pulled back. By Tuesday, the euro had risen to around $1.1252, up about 0.3% on the day.
The rebound eased some immediate pressure, but the broader backdrop remained difficult. Investors are monitoring France’s budget outlook, elevated government borrowing costs and Spain’s newly announced snap election, all while global bond yields remain high.
Euro Hit a 17-Month Low on Monday
The euro’s latest decline accelerated at the start of the week.
On Monday, it fell to around $1.116, its weakest level in 17 months, as concerns over France’s ability to bring its budget deficit under control pushed investors toward the dollar and other perceived safer assets.
The currency had already fallen about 1.2% during the previous week, according to Reuters reporting.
The move reflected several pressures rather than a single event. French bond-market stress, strong U.S. Treasury yields and political uncertainty across parts of the euro zone all contributed to the decline.
French Fiscal Concerns Remain the Main Pressure Point
France remains the largest source of concern for euro-area bond investors.
Markets have been focused on whether Paris can reduce a budget deficit that has remained well above the European Union’s 3% of GDP threshold.
Reuters reported that France’s deficit is expected to remain around 5.4% of GDP, while political divisions have made agreement on spending cuts and tax measures more difficult.
The yield gap between French and German 10-year government bonds recently widened above 150 basis points, reaching levels not seen since the euro-zone debt crisis era.
That spread is commonly used as a market measure of the additional risk investors demand to hold French debt instead of benchmark German bonds.
A wider spread does not mean France is unable to borrow. It does, however, indicate that investors are demanding a higher return to hold its debt.
French Bond Yields Ease, Giving the Euro Some Relief
Pressure moderated on October 6.
France’s 10-year bond yield fell by around 8 basis points to 4.7824%, helping calm some concerns about stress in euro-area debt markets.
The euro responded by rebounding from Monday’s lows.
Falling oil prices also helped sentiment because lower energy costs reduce some inflation pressure and lessen the risk that high input costs further weaken European growth.
The move should not be interpreted as a resolution of France’s fiscal problems. The underlying budget debate remains open, and investors continue to assess whether the next government can deliver a credible path toward lower deficits.
France’s 2027 Election Adds Political Risk
Fiscal concerns are closely tied to the country’s political outlook.
France is heading toward a presidential election in 2027, and competing parties are offering different approaches to spending, taxation and debt reduction.
Marine Le Pen, one of the leading candidates, has proposed €140 billion in net savings by 2032, including large spending reductions and changes to France’s contribution to the European Union.
The current government has proposed a smaller package of savings.
These competing plans are political proposals rather than enacted policy. Markets are focused on whether any future government will be able to secure parliamentary support for deficit reduction.
Spain Adds a New Source of Political Uncertainty
Spain became an additional focus for investors after Prime Minister Pedro Sánchez called a snap election for November 29, 2026.
The decision came amid political pressure on his government, including disputes over housing policy and allegations involving people close to the administration.
Spain’s economy has been growing faster than many other large European economies, but the election adds uncertainty over future fiscal, housing and migration policy.
The political development has not produced the same bond-market stress seen in France, but it adds another variable for investors already monitoring several sources of uncertainty across Europe.
Spain’s Economy Has Been Relatively Strong
The political concerns come against a different economic backdrop from France.
Reuters analysis noted that Spain’s GDP has increased by about 15% since late 2021, while annual growth has been running near 2.5%.
That growth has been supported by stronger population gains, tourism, employment and investment.
However, housing affordability has become a major political issue. Home prices have risen sharply, and the government has faced criticism over shortages and affordability pressures.
The election therefore creates political uncertainty even though Spain is not currently facing the same level of fiscal-market concern as France.
Global Bond Yields Are Adding Pressure
The euro is also being influenced by developments outside Europe.
U.S. Treasury yields recently climbed to their highest levels in more than two decades, increasing the relative attractiveness of dollar-denominated assets.
Higher U.S. yields can support the dollar because investors receive greater returns from holding U.S. government debt.
That can put downward pressure on currencies such as the euro even when European developments are relatively stable.
On October 6, U.S. Treasury yields eased somewhat, helping the euro and other currencies recover.
ECB Policy Expectations Are Part of the Currency Debate
Investors are also reassessing the outlook for European Central Bank policy.
Higher bond yields and fiscal stress can tighten financial conditions without the ECB changing its official policy rate.
At the same time, euro-zone inflation remains above target, limiting how quickly policymakers could respond to weaker growth or market stress with easier monetary policy.
Reuters reported that euro-zone inflation was around 3.8%, while markets were still pricing a high probability of another rate increase before year-end.
Those expectations can change rapidly as new inflation, growth and wage data arrive.
French Risk Could Matter Beyond France
Investors are watching France closely because it is the euro zone’s second-largest economy and one of its largest government bond markets.
A sustained rise in French borrowing costs could affect banks, insurers and investment funds across Europe that hold French sovereign debt.
That creates the possibility of spillovers into other countries even if their own fiscal positions are stronger.
Reuters analysis has noted that a serious French bond shock could eventually test the European Central Bank’s willingness to intervene if market stress became disorderly.
That remains a risk scenario rather than a current ECB action.
Euro Weakness Reflects Several Factors
The euro’s decline should therefore not be attributed only to France or Spain.
The currency is being influenced by a combination of:
- French fiscal and bond-market concerns;
- Spanish political uncertainty;
- elevated U.S. Treasury yields;
- global demand for dollars;
- expectations for ECB and Federal Reserve policy; and
- changes in energy prices.
Foreign-exchange markets respond continuously to these factors, and their importance can shift quickly.
A 17-Month Low Does Not Establish a New Trend
The euro’s fall to $1.116 is a confirmed market level.
It does not establish that the currency will continue weakening.
On October 6, the euro rebounded as French yields eased and the dollar softened.
Further moves will depend on fiscal developments in France, election uncertainty in Spain, global bond markets, central-bank expectations and incoming economic data.
Currency markets can reverse direction rapidly when those factors change.
Conclusion
The euro remains under pressure after falling to a 17-month low of roughly $1.116 on October 5, driven largely by concerns over France’s fiscal outlook and higher borrowing costs.
The currency recovered to around $1.1252 on October 6 as French bond yields declined, providing some relief to euro-zone markets.
France remains the principal fiscal concern because of its large budget deficit, elevated bond yields and political uncertainty ahead of the 2027 presidential election.
Spain has added another source of uncertainty after Prime Minister Pedro Sánchez called a snap election for November 29, although Spain’s underlying economic performance remains stronger than that of several other major European economies.
The recent currency moves reflect a combination of political, fiscal and global market pressures. The euro’s proximity to a 17-month low is an observed market fact, but it does not determine its future direction.
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