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Euro Plunges to 17-Month Low Amid French Fiscal Crisis, Contagion Fears Mount
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CNBC TV18•05-10-2026, 11:15
Euro Plunges to 17-Month Low Amid French Fiscal Crisis, Contagion Fears Mount
- •The euro slid to a 17-month low against the dollar, reaching $1.1161, driven by France's escalating fiscal worries and political uncertainty ahead of next year's election.
- •Concerns are growing that France's debt issues could trigger a wider euro zone crisis, reminiscent of the debt crisis over a decade ago, potentially forcing the European Central Bank to intervene.
- •Analysts are divided on the extent of contagion risk, with some suggesting it's currently a country-specific issue rather than a full-blown euro crisis, while others warn of potential spread.
- •The bond market continues to be volatile, with French bond futures near record lows and the premium of French 10-year borrowing costs over Germany's seeing its biggest weekly jump in 17 years.
- •The dollar strengthened against major currencies, benefiting from safe-haven flows and higher Treasury yields, despite softer-than-expected US jobs data impacting near-term rate hike expectations.
Key Questions Answered
The euro dropped to a 17-month low of $1.1161 in Asian hours due to escalating fiscal worries and debt levels in France, following a steep bond market rout that stirred contagion fears across the region.
The premium of French 10-year borrowing costs over German Bunds finished the week at 140 basis points, after surging by 34 basis points in what marked its biggest weekly jump in 17 years.
Data indicating that US job growth slowed more than expected in September dented near-term rate hike expectations, pushing traders to price in a 78% probability that the US central bank will hold rates steady in October.
