Investing.com – The euro plunged to its lowest level in 17 months against the U.S. dollar on Monday, as a government debt crisis in Paris and severe European bond market fragmentation triggered widespread risk aversion.
The single currency dropped 0.7% to trade at $1.1170 after earlier sinking to $1.1160 – its weakest level since May 2025. The sell-off marks a fourth consecutive weekly retreat for the euro, which has come under relentless pressure as international allocators flee French assets.
The slide in the euro served as the primary engine driving the U.S. dollar higher across major currency pairs. The dollar index, which tracks the greenback against a basket of six major peers, climbed 0.5% to 102.48, brush-off softer domestic macroeconomic prints to capitalize on European cross-border strain.
The euro was down 0.3% against the yen and the Swiss franc, and was trading at its lowest since November 2025 against the Japanese currency.
“There is a bit of an early month lull in the data calendar this week,” analysts at Llyod’s Bank said.
“The main focal point will be the final services and composite PMI reports (Mon), which should offer more granular colour from across the Eurozone and perhaps include more detail on the effect of the rise in energy during the month, which had little impact on the early estimates.”
French fiscal gridlock sparks contagion anxieties
The euro’s acute vulnerability stems from a deepening fiscal shock in France, where mounting public debt loads and severe political gridlock ahead of next year’s presidential election have triggered a repricing of sovereign risk premia.
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A violent sell-off in French government paper saw two-year yields jump 76 basis points on the day, while the yield spread between 10-year French OATs and benchmark German Bunds blew past 140 basis points – its widest since the Eurozone debt crisis in 2012. With five-year French credit default swaps soaring to 87 basis points, currency desks are actively pricing in broader fiscal contagion across the single-currency bloc.
The persistent cost-push inflation stemming from elevated crude oil and wholesale gas prices has compounded the European Central Bank’s policy dilemma, leaving the euro caught between stagflationary growth risks and structural debt concerns.
