Euro rebounds as French bond yields ease and debt concerns subside

智通财经2026/10/06 13:07

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(1) The euro rebounded on Tuesday after having fallen to a 17-month low the previous day, as a rally in French government bonds eased some concerns over debt market pressures in the eurozone. (2) The euro rose about 0.5% against the US dollar to near 1.127, after having dropped to a low of around 1.116 on Monday, its lowest since May 2025, extending last week’s more than 1% decline. (3) This trend pushed the dollar index down by around 0.4% to near 101.75, after it touched an 18-month high of about 102.53 on Monday. (4) Global bond markets have been battered in recent months due to soaring energy prices caused by the US, Israel, and Iran conflicts, expectations of steep central bank rate hikes, and concerns over high borrowing costs. (5) French debt was hit particularly hard, as politicians struggled to control the budget deficit ahead of the divisive 2027 elections. Monday's sell-off dragged on the euro, and Spain’s early general elections added further pressure. (6) However, a decline in energy prices on Tuesday helped French government bonds rebound, with the key 10-year yield falling by more than 0.1 percentage points, which in turn stabilized the euro. (7) On Tuesday, French far-right presidential candidate Le Pen increased her planned spending cuts from the original 125 billion euros to 140 billion euros. (8) According to a Commerzbank foreign exchange analyst, current French bond yields suggest market tensions have eased, but the risk remains that conditions could tighten again at any moment. (9) The pullback in the US dollar gave other currencies some respite, with the pound rising about 0.4% to around 1.328. (10) However, the dollar rose about 0.1% against the yen to near 158.07. (11) According to sources, the Bank of Japan may signal this month that underlying inflation has roughly reached the 2% target, highlighting its readiness for another rate hike in the coming months. (12) The US dollar has strengthened recently despite weaker-than-expected US employment data dampening expectations for a Fed rate hike this month, as investors still bet the Fed will tighten policy further. (13) The CME FedWatch Tool shows about a 22% probability of a rate hike in October, and about an 85% chance of at least one hike before December. (14) According to an ING FX strategist, the euro’s own weakness continues to play a role, and rising global bond yields are also a factor.

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The euro rebounded on Tuesday after having fallen to a 17-month low the previous day, as a rise in French government bonds alleviated some concerns over eurozone debt market pressures.
The euro rose about 0.5% against the US dollar to around 1.127, after having fallen on Monday to near its lowest level since May 2025 at around 1.116, extending last week’s drop of more than 1%.
This movement pushed the US Dollar Index down by about 0.4% to around 101.75, after reaching an 18-month high of around 102.53 on Monday.
Global bond markets have been hit in recent months as energy prices soared due to US, Israel, and Iran conflicts, markets anticipated sharp central bank rate hikes, and concerns about high borrowing costs persisted.
French debt has come under particular stress, with politicians struggling to control the budget deficit ahead of a divisive 2027 election; Monday’s selloff weighed on the euro, while Spain’s early election also added pressure.
However, on Tuesday lower energy prices helped French government bonds rebound, the key 10-year yield dropped by more than 0.1 percentage point, and the euro consequently stabilized.
French far-right presidential candidate Le Pen on Tuesday raised her planned spending cuts from the originally planned 125 billion euros to 140 billion euros.
According to a Commerzbank foreign exchange analyst, looking at current French government bond yields, market tension has eased, but the risk is that the situation could become tense again at any time.
The US dollar’s pullback gave other currencies some breathing room, with the pound rising about 0.4% to around 1.328.
However, the US dollar rose about 0.1% against the Japanese yen to around 158.07.
Sources indicated that the Bank of Japan may signal this month that underlying inflation has roughly reached the 2% target, highlighting its readiness to raise interest rates again in the coming months.
The US dollar’s recent strength continued, as investors still bet on further Fed tightening, even though weaker-than-expected US employment data cooled expectations for a rate hike this month.
According to the CME FedWatch tool, the probability of a rate hike in October is about 22%, while the chance of at least one hike before December is about 85%.
ING FX strategists noted that the euro’s own weakness remains a factor, and the continued rise in global bond yields is also contributing.

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