The euro fell to its weakest level against the US dollar since May 2025 on Monday, as France’s debt problems and a snap election call in Spain revived worries about stress in the eurozone. The currency touched $1.1161 in Asian trading after four straight weekly losses, then recovered slightly to around $1.12 by the European open.
French government bonds remain at the centre of the selling. The gap between French and German 10-year yields stands at roughly 146 basis points after its largest weekly increase in 17 years, according to LSEG. France’s 10-year yield rose to 4.917 percent in early trading, close to last week’s 24-year high, after ending Friday at around 4.856 percent. Finance Minister Roland Lescure has insisted that France remains a solid borrower, and he has unveiled a 2027 budget that aims to reduce the deficit from 5.4 percent of GDP to 5 percent ahead of next spring’s presidential election.
Spain added to the pressure when Prime Minister Pedro Sánchez called a general election for 29 November, after parliament rejected two of his minority government’s housing decrees on Friday. Spanish debt held up better than French debt, with the 10-year yield steady between 4.07 and 4.09 percent and its premium over German bonds at around 65 basis points, less than half of France’s. Analysts at ING warned that the market could “easily add another 2% in risk premium to the euro” if the bond sell-off spread further.
The strain has already reached other markets. Last week’s sell-off hit Italian, Belgian and Greek bonds, with Italy’s premium over German Bunds nearing 110 basis points on Thursday, while German debt attracted safe-haven buying. Belgian bank KBC said in a note that there had been clear contagion towards Belgium and Italy. Stock markets were mixed on Monday morning: the Euro Stoxx 50 fell 0.4 percent, the broader Stoxx 600 rose 0.6 percent and France’s CAC 40 dropped more than 1 percent.
The turmoil leaves the European Central Bank in an awkward position. It has raised interest rates twice since June to tackle inflation, which reached 3.8 percent in September, and its Transmission Protection Instrument, a bond-buying backstop created in 2022, has never been used. Bundesbank president Joachim Nagel said the bank’s focus was price stability rather than particular spread levels. ECB President Christine Lagarde told the French daily La Croix that France’s debt was a serious matter, but added: “it’s not 2008 or 2011”.
