Euro Drops to 17-Month Low as French Bond Turmoil Shakes Markets

Nearly 5% Decline Against the Dollar This Year
French-German Bond Yield Spread Widest Since 2011
Speculation Grows Over Possible ECB Response

The value of the euro has dropped to its lowest level in 17 months due to political and fiscal instability in major European countries such as France and rising energy prices.

A woman is withdrawing euro banknotes from an ATM in Zagreb, the capital of Croatia. Photo by Yonhap News

According to Bloomberg and other sources on October 5 (local time), the euro weakened by 0.8% in the Asian foreign exchange market, falling to $1.1161 from the previous session. In the London foreign exchange market, the euro is also trading down 0.6%, hovering around $1.12.

The euro has declined against the dollar for four consecutive weeks as of last week, and it has fallen by about 5% since the beginning of this year.

France is at the center of this market turmoil. With budget uncertainty and concerns over fiscal soundness growing ahead of next year's presidential election, volatility in the European bond market has increased as speculation about the possibility of an early general election in Spain has emerged.

Last week, the yield on 10-year French government bonds rose to 4.9%. On October 2, the spread between French and German 10-year government bond yields widened to 1.5 percentage points, the largest gap since 2011. This indicates that investors are shifting toward Germany's relatively safer government bonds.

In the foreign exchange market, there is caution that instability in the European bond market could spread to overall weakness across the eurozone. Some speculate that the European Central Bank (ECB) may step in to respond in order to prevent France's debt issues from spreading.

Eric Robertson, Chief Strategist at Standard Chartered, diagnosed that "France appears to lack both the will and the ability to get its finances under control" and added, "High energy prices amid low growth are pushing up inflation, which also weighs on the euro."

This content was produced with the assistance of AI translation services.