Euro Hits 17-Month Low as French Borrowing Costs Remain Elevated

The euro fell to about $1.1161 in Asian trading on October 5, its weakest level since May 2025, before recovering to around $1.12. Reuters reported the currency move as investors assessed French debt concerns alongside dollar strength and interest-rate expectations.

French bonds and the euro

The gap between French and German 10-year government-bond yields was about 146 basis points in Euronews’ morning report. Reuters subsequently put it at 145.5 basis points. France’s 10-year yield was approximately 4.92%. These were readings at particular times during the trading day, rather than closing prices.

The yield gap shows that investors demanded substantially more to hold French debt than German debt at those times. The euro’s decline has several reported influences: Reuters also identified dollar strength and interest-rate expectations. The currency move therefore cannot be assigned exclusively to France’s borrowing costs or Spain’s election announcement.

A separate constraint on the interest-rate outlook is inflation. Eurostat’s October 2 flash estimate put annual euro-area inflation at 3.8% in September, up from 3.2% in August. The estimate describes price growth across the currency area; it does not identify the cause of the day’s bond or currency moves.

France’s budget exposure

France’s draft 2027 budget, presented October 1, projects a deficit of 5.4% of gross domestic product in 2026 and targets 5.0% in 2027. The figures are government projections. Parliament has yet to determine whether the proposed budget passes unchanged, and the stated deficit target remains an intended outcome.

The same draft projects annual interest costs rising from €79.2 billion in 2026 to €91.2 billion in 2027, an increase of €12 billion. If elevated yields persist as France refinances debt, borrowing costs could further restrict the government’s fiscal room. The budget projections do not establish where market yields will settle.

The duration of the French bond-market pressure remains uncertain. The reported spread documents a substantial difference in borrowing costs on October 5; it does not show whether that difference will persist, widen or materially affect other euro-area sovereign borrowers.

Spain’s election and policy limits

Prime Minister Pedro Sánchez announced an early general election for November 29. The result could affect Spain’s future fiscal policy, but neither the election outcome nor any resulting policy change is known. Reuters reported that Spanish bond yields rose only about one basis point in the initial market reaction.

That limited initial move provides little evidence of Spanish sovereign-debt stress comparable to the pressure reported in French bonds. Reuters also described broader European equity markets as mixed. The available market readings support a finding of French bond pressure and euro weakness, without establishing bloc-wide sovereign-debt contagion.

The European Central Bank’s Transmission Protection Instrument is designed to address unwarranted, disorderly market moves that threaten monetary-policy transmission. Its use requires an ECB assessment of market conditions and eligibility. The reported French–German spread does not, by itself, trigger bond purchases.