The common currency fell about 0.6% to just under $1.12 and hit its weakest against sterling since June 2025, as French borrowing costs climbed again and swaps trimmed expected ECB hikes.
On Tuesday the euro bounced. On Wednesday it lost all of that and more.
The euro fell about 0.6% against the dollar to just below $1.12. A close at that level would be its weakest since . Against the British pound it dropped as low as 84.49 pence, its lowest since June 2025, and it trailed most other major currencies.
The move reversed Tuesday's rebound, when the euro rose to about $1.126 after Marine Le Pen raised her deficit-reduction pledge and French bonds rallied. At just under $1.12, the currency is about 0.5% below that level.
French bonds again
The pressure came back through the bond market. The yield on 10-year French government debt rose about 0.16 percentage point on Wednesday. Yields on Italian, Greek, Belgian and British 10-year bonds also climbed by at least 0.1 point. French bank Société Générale fell about 5% in Paris, and HSBC and Deutsche Bank also declined.
Investors in recent weeks have weighed France's difficulty in reining in public spending, and the political backdrop across the region has added to the strain. "The eurozone appears to be headless at a crucial time," said Achilleas Georgolopoulos, a senior market analyst at XMTrading, pointing to pressure on the German chancellor to resign, a snap election in Spain and public unrest in France.
The rate channel
Interest-rate expectations moved against the euro as well. Swaps now price three quarter-point increases by the European Central Bank by September 2027, down from four early last week. Fewer expected hikes reduce the yield advantage of holding euro assets, while the 10-year U.S. Treasury yield touched its highest level since 2002 on Wednesday.
"Political concerns in Europe will continue to pose downside risks to the euro," a strategist at Commonwealth Bank of Australia said. Derek Halpenny of MUFG wrote that, given the risk of foreign investors selling French government bonds, "downside risks are set to prevail" for the euro against the dollar.
Two interpretations
One reading is that the currency is pricing a fiscal and political risk premium specific to the euro area, visible in its fall against sterling as well as the dollar and in the drop in European bank shares.
Another reading is that Wednesday was part of a broader move into dollar assets as U.S. yields hit multidecade highs, and that the euro's slide reflects the gap between American and European rate expectations as much as French politics.
Upcoming dates
The ECB publishes the account of its last policy meeting on Thursday. France's budget goes before the National Assembly next week, and Moody's reviews the country's rating on . Whether the euro holds above $1.116, the low it touched on Monday, and whether its slide against sterling continues, will show whether the selling is concentrated in euro-area assets or spread across everything that is not the dollar.