Euro hits 17-month low as French fiscal jitters shake bond markets
In short
The euro fell to its weakest level in 17 months against the dollar, dropping 0.8% to 1.1161 dollars in Asian trading and about 0.6% to around 1.12 in London, according to Bloomberg and Reuters figures cited by Yonhap and Asia Economy. Attention is focused on France, where budget uncertainty ahead of next year's presidential election helped push the 10-year bond yield to 4.9% last week and widened the France-Germany 10-year gap to 1.5 percentage points on Oct. 2, the widest since 2011. The reports say some market participants expect the European Central Bank to respond so French debt problems do not spread across the eurozone.
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The euro fell to 1.1161 dollars in Asian foreign exchange trading on Oct. 5, down 0.8% from the previous session, and was trading around 1.12 dollars in London, down 0.6%, according to Bloomberg and Reuters figures cited by Yonhap. Asia Economy reported the same levels. Both described the move as the euro's weakest in 17 months, with Yonhap saying it was the lowest since May last year. [ 1 , 2 ]
The decline extended an existing run of losses: the euro had fallen for four consecutive weeks against the dollar and was down nearly 5% this year, the two reports said. Yonhap, citing traders, said short-term investors in Asian markets sold spot euros to buy dollars, which fed into option-related trading. [ 1 , 2 ]
France is the focus of the market anxiety, according to both reports. Ahead of next year's presidential election, budget uncertainty and concern about fiscal stability have unsettled French government bonds, and the reports also point to large protests in Spain over housing costs that have increased speculation about an early general election there. France's 10-year bond yield rose to 4.9% last week, and on Oct. 2 the gap between French and German 10-year yields widened to 1.5 percentage points, the widest since 2011 — a sign, the reports said, that investors prefer German debt. [ 1 , 2 ]
Yonhap, citing the Financial Times, said the market is watching for signs that the European bond market turmoil could spread into broader euro weakness, and that some expect the European Central Bank to respond so that France's debt problems do not spread across the eurozone. Eric Robertson, chief strategist at Standard Chartered, said France appears to have neither the will nor the ability to get its public finances in order, adding that high energy prices are pushing up inflation in a period of weak growth and adding to pressure on the euro, both outlets reported. Yonhap also quoted him saying that “Europe's situation has really begun to deteriorate”. [ 1 , 2 ]
Korea Economic Daily carried a headline saying French fiscal instability may be spreading across Europe and that the euro had fallen to a 17-month low. The article text available for that report, however, did not contain the bond-market or currency-level figures used by the other outlets, showing instead unrelated items, including a euro banknote redesign. [ 3 ]
Why it matters
The euro is a widely held reserve currency, and the decline follows four straight weekly losses and a fall of nearly 5% this year, so the move affects pricing and currency exposure well beyond Europe. The documents' central question is whether turmoil in French government bonds spreads through the eurozone, and whether the European Central Bank intervenes — an expectation the reports attribute to market participants, not to the central bank.
Key facts
- The euro fell 0.8% to 1.1161 dollars in Asian foreign exchange trading on Oct. 5 and was trading about 0.6% lower at around 1.12 dollars in London. [ 1 , 2 ]
- Both Yonhap and Asia Economy described the level as the euro's weakest in 17 months, with Yonhap saying it was the lowest since May last year; Korea Economic Daily's headline also cited a 17-month low. [ 1 , 2 , 3 ]
- The euro had fallen for four consecutive weeks against the dollar and was down nearly 5% this year, the reports said. [ 1 , 2 ]
- France's 10-year government bond yield rose to 4.9% last week, and on Oct. 2 the gap between French and German 10-year yields widened to 1.5 percentage points, the widest since 2011. [ 1 , 2 ]
- The reports link the bond market strain to French budget uncertainty ahead of next year's presidential election, and to growing speculation about an early general election in Spain after large housing protests. [ 1 , 2 ]
- Eric Robertson, a senior strategist at Standard Chartered, said France appears to lack the will or ability to get its finances in order and that high energy prices are feeding inflation and adding to pressure on the euro. [ 1 , 2 ]
Confirmed by several sources
- The euro fell to its weakest level in 17 months against the dollar. [ 1 , 2 , 3 ]
- The euro dropped 0.8% to 1.1161 dollars in Asian trading and was around 1.12 dollars in London, down about 0.6%. [ 1 , 2 ]
- The euro had declined for four consecutive weeks and was down nearly 5% so far this year. [ 1 , 2 ]
- France's 10-year bond yield reached 4.9% last week and the France-Germany 10-year yield spread widened to 1.5 percentage points on Oct. 2, the widest since 2011. [ 1 , 2 ]
- French budget uncertainty ahead of next year's presidential election and speculation about an early election in Spain are among the factors cited for the market moves. [ 1 , 2 ]
- Market participants expect the European Central Bank may act so that France's debt problems do not spread across the eurozone, according to the reports. [ 1 , 2 ]
Still unclear
- Whether the European Central Bank will actually intervene over French debt concerns, and in what form or on what timetable The documents present this as an expectation among market participants, citing the Financial Times and unnamed observers, with no ECB statement or detail on measures or timing.
- How much the speculation about an early general election in Spain contributed to the euro's fall The detailed reports mention growing speculation after large housing protests, but give no official confirmation of a snap election and no polling or official data.
What local media are saying
Timeline, local time
- Yonhap reports the euro fell 0.8% to 1.1161 dollars in Asian trading, its lowest since May last year, and was trading around 1.12 dollars in London. [ 1 ]
- Asia Economy reports the same 17-month low and the 4.9% French 10-year yield, citing Bloomberg. [ 2 ]
- Korea Economic Daily publishes a headline saying French fiscal instability may spread across Europe and the euro hit a 17-month low. [ 3 ]