EUR/USD Holds Near a 17-Month Low as France’s Debt Crisis Weighs on the Euro

Key Takeaways

• EUR/USD traded around 1.1215 on Friday, remaining close to Monday’s 17-month low of approximately 1.1161.
• France’s 10-year government bond yield has climbed toward 5%, while its spread over German debt remains near levels last seen during the eurozone sovereign-debt crisis.
• France’s public debt has reached approximately €3.5 trillion, or almost 120% of GDP, and its budget deficit remains well above the European Union’s 3% ceiling.
• EUR/USD could test 1.1100 if French bond-market stress continues, while a recovery above 1.1300 would require fiscal progress or renewed weakness in the US dollar.

EUR/USD remained close to its lowest level in 17 months on Friday as concerns about France’s deteriorating public finances continued to limit demand for the euro.

The currency pair traded near 1.1215 during early Asian trading, recovering modestly from Monday’s low of approximately 1.1161. That was the euro’s weakest level against the dollar since May 2025.

The rebound has remained limited because investors are demanding substantially higher yields to hold French government debt. Political resistance to spending cuts and uncertainty surrounding the 2027 presidential election have raised doubts about whether Paris can stabilize its deficit without creating further economic or political disruption.

EUR/USD Remains Close to 1.1161 Low

The euro has fallen approximately 3.6% from its September 9 high near 1.1654, including a decline of almost five cents over the past month.

EUR/USD briefly moved back above 1.1200 as European bond markets stabilized, but the currency has struggled to attract sustained buying. The pair remains only around 50 pips above its recent 17-month low.

The euro’s inability to recover strongly is notable because recent US employment data were weaker than expected. The US economy added only 29,000 jobs in September, well below market forecasts, initially reducing expectations for another immediate Federal Reserve rate increase.

Normally, weaker US data would support EUR/USD by reducing Treasury yields and weakening the dollar. Instead, concerns about French debt have outweighed the softer American employment figures.

France’s Debt Crisis Pressures the Euro

France has moved to the center of the eurozone’s latest fiscal concerns.

The country’s public debt has climbed to approximately €3.5 trillion and almost 120% of gross domestic product. Its budget deficit is projected at around 5.4% to 5.5% of GDP in 2026, significantly above the European Union’s 3% limit.

France’s government has proposed a combination of spending reductions and tax increases in an attempt to improve the fiscal outlook. However, Prime Minister Sébastien Lecornu faces considerable resistance from opposition parties, public-sector workers, students and trade unions.

The fragmented parliament makes it difficult to approve large spending cuts. Investors are also concerned that politicians may avoid unpopular reforms ahead of the April 2027 presidential election.

France has not recorded a balanced government budget since the 1970s. Years of persistent deficits, combined with higher interest rates, mean debt-servicing costs are consuming a growing proportion of public spending.

The problem is becoming self-reinforcing. As investors demand higher yields to finance the government, interest expenses increase, making it more difficult to reduce future deficits.

French 10-Year Bond Yield Approaches 5%

The yield on France’s benchmark 10-year government bond has risen to approximately 4.9%, its highest level since 2002.

At a recent bond auction, France sold 10-year debt at a yield of 4.93%, compared with 3.86% at an auction in August. That represents an increase of more than one percentage point in only two months.

The spread between French and German 10-year bond yields has become one of the most important indicators for EUR/USD.

German Bunds are treated as the eurozone’s safest government debt. A widening spread indicates that investors require more compensation to hold French bonds because they perceive greater fiscal and political risk.

The French-German spread recently approached 160 basis points, its widest level since the 2011 eurozone debt crisis. It has since moved closer to 140 basis points but remains far above the levels seen at the beginning of October.

The rise in French yields is not inherently positive for the euro. Unlike higher yields produced by stronger economic growth or tighter monetary policy, the increase reflects a growing risk premium. Investors may therefore sell French assets and transfer funds into German Bunds, US Treasuries, Swiss francs or other perceived safe havens.

Why France Matters to the Entire Eurozone

France is the eurozone’s second-largest economy and one of its biggest sovereign bond issuers. A sustained loss of confidence in French debt would therefore be much more significant than financial stress in a smaller member state.

The country also plays a central role in European policymaking and the region’s banking system. French banks hold government debt and finance businesses throughout the currency bloc, creating potential channels through which fiscal stress could spread.

Bond yields in Italy and other eurozone countries have also increased, suggesting that investors are beginning to reassess sovereign risk across the region.

Italy’s yield spread over Germany recently climbed to approximately 110 basis points. Although that remains below the French spread, simultaneous increases across several countries could create a more difficult environment for the European Central Bank.

The ECB has instruments that could be used to counter disorderly market conditions, including flexible bond reinvestments and its Transmission Protection Instrument. However, intervention would be politically sensitive and could require France to demonstrate a credible commitment to fiscal reform.

Some institutional investors have started purchasing Italian bonds and European corporate debt following the selloff, arguing that the risk of another eurozone crisis is being overstated. They remain more cautious about buying French government bonds directly.

Higher Oil Prices Create Another Headwind for EUR/USD

The euro is also facing pressure from the sharp increase in energy prices.

Brent crude briefly moved above $105 per barrel on Thursday after attacks on tankers and renewed disruption risks near the Strait of Hormuz. It later traded around $104.60, still more than 4% higher for the session.

Europe imports a large proportion of its energy. Higher oil and natural-gas prices increase the region’s import bill, weaken its trade balance and raise operating costs for companies.

The increase also creates a difficult policy problem for the ECB. Higher energy prices could keep eurozone inflation elevated even as restrictive financial conditions and fiscal uncertainty weaken economic growth.

Eurozone inflation reportedly rose to 3.8% in September, moving further above the ECB’s 2% target. Under normal circumstances, higher inflation might encourage the central bank to raise rates and support the euro. However, further tightening could intensify pressure on France and other highly indebted governments.

That conflict between inflation control and financial stability is another reason currency traders remain cautious about the euro.

US Dollar Retains a Yield Advantage

The US dollar has also benefited from comparatively high Treasury yields and expectations that the Federal Reserve will maintain restrictive monetary policy.

The dollar recently traded near its strongest level since April 2025. Although the weak September employment report reduced the probability of an October rate increase, markets continue to see a substantial chance of another Fed move before the end of the year. live

US Treasury yields have also remained elevated amid inflation concerns, rising energy prices and heavy government borrowing. The combination of high US yields and European fiscal uncertainty encourages investors to favor dollar-denominated assets.

The euro could recover if upcoming US inflation or consumer data significantly weaken expectations for additional Fed tightening. However, softer US data may provide only temporary support while the French fiscal situation remains unresolved.

EUR/USD Technical Levels to Watch

The October 5 low around 1.1160 is the first important support level. A sustained break below it would confirm a new medium-term low and could expose the 1.1100 psychological threshold.

Below 1.1100, the next potential support region is between 1.1000 and 1.1050. A decline toward that area would likely require another sharp rise in French bond spreads or stronger US economic data.

On the upside, EUR/USD faces initial resistance around 1.1250. A close above that level could support a recovery toward 1.1300, where previous support may now act as resistance.

The main scenarios are:

• French bond stress intensifies: A renewed increase in the French-German yield spread toward or above 160 basis points could push EUR/USD below 1.1160 and toward 1.1100.
• Fiscal concerns stabilize: Progress on France’s 2027 budget could allow the euro to recover toward 1.1250 or 1.1300.
• US data weakens sharply: Lower inflation or consumer activity could reduce Fed rate-hike expectations and weaken the dollar, providing additional support for EUR/USD.
• Oil remains above $100: Persistently elevated energy prices could keep European inflation high while damaging growth, maintaining downward pressure on the currency.

Can the Euro Recover From Its 17-Month Low?

A sustainable EUR/USD recovery will probably require more than weaker US data. Investors need evidence that France can approve a credible budget and prevent borrowing costs from rising further.

The current situation does not yet resemble the most severe stage of the 2010–2012 eurozone crisis. France has a large and diversified economy, a substantial domestic financial sector and continued access to bond markets. Demand at recent government auctions has remained adequate, even though investors have required much higher yields.

Nevertheless, France’s fiscal position has become an independent risk factor for the euro. Until the government demonstrates that it can stabilize its debt trajectory, rallies in EUR/USD may remain limited.

The 1.1160 low is now the key level separating consolidation from another decline. A break below it would bring 1.1100 into focus, while a recovery above 1.1300 would provide the first stronger indication that the euro’s recent selloff is losing momentum.

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