Euro Sinks to 17-Month Low, Stoking Eurozone Debt and Inflation Fears

The euro hit a 17-month low against the US dollar in early trading Monday, sliding to $1.12 as investor concerns over eurozone debt — particularly France — combined with rising global bond yields and higher oil prices, according to reports from DW.

The common currency has been weakening against the dollar for much of 2026, down roughly 5% since the start of the year. Monday’s level was the lowest since early 2025.

Ricardo Amaro, lead eurozone economist at Oxford Economics, told DW that the broader slide reflects a repricing of expectations for US Federal Reserve policy — namely, higher interest rates in response to rising global bond yields. However, he said the latest leg of the sell-off was driven specifically by France, where “investors positioned for higher fiscal risk.”

**French Debt Under Pressure**

The sell-off in French government bonds accelerated last week as doubts mounted over the country’s long-term fiscal viability. The yield on French 10-year bonds rose to 5% before easing slightly, DW reported.

France’s underlying fiscal problems are long-standing. Since President Emmanuel Macron took office in May 2017, public spending has climbed while deep tax cuts were implemented. The national debt has increased by well over €1 trillion ($1.12 trillion), and France’s debt-to-GDP ratio now stands at almost 118%. Its annual budget deficit is regularly above 5%, compared with 3.4% when Macron came to power.

Wider anxieties over low eurozone growth and surging energy prices have prompted many investors to shift into perceived safe havens such as German government debt, DW reported. The spread between French and German 10-year bond yields reached its widest since the eurozone debt crisis last week — a closely watched gauge of EU financial stability.

Deutsche Bank’s Jim Reid said in a note Monday that the spread had become so wide at one point last week that a “mini-panic” was at hand. “The big question is whether this is the start of a new euro sovereign crisis or whether markets have already overshot,” he said, according to DW.

**ECB Under Pressure**

The pressure on both the euro and other bond markets, including Italy’s, has prompted calls for the European Central Bank to intervene to prevent a broader panic.

Amaro told DW the situation is a delicate one for the ECB. “Sounding too hawkish would also add to pressure on France’s bond yields, which became an important driver of euro weakness,” he said. He expects policymakers to continue monitoring currency developments but to stop short of trying to influence the market for now.

**Political Instability Adds to Uncertainty**

Political factors are compounding the economic strain. France has been gripped by political crises in recent years, with annual budget passage becoming a major test of government stability, DW reported. Although the 2027 budget has been agreed with deficit-reduction reforms, the right-wing National Rally — led by Marine Le Pen — is well positioned ahead of the 2027 presidential election. Concerns over French economic policy in the event of a Le Pen victory are unsettling investors.

In Spain, Prime Minister Pedro Sánchez has called a snap election after housing-crisis measures were voted down in parliament. Much of the political instability across the bloc is fueled by voter anger over the high cost of living.

**Inflation Threat from Weaker Euro**

Amaro warned that a further weakening of the euro could worsen the inflation problem. “Sharper euro weakness would reinforce the inflationary shock at a time when inflation is already expected to stay high into 2027,” he told DW.

A weaker euro raises the cost of imported goods priced in US dollars, including globally traded commodities such as oil and gas. That would push energy prices even higher, along with the price of US imports.

**Comparisons to 2012**

With memories of the eurozone sovereign debt crisis of the early 2010s still fresh, some observers are asking whether the moves on French debt signal a new crisis. Geoffrey Yu, a senior strategist at BNY, told DW such comparisons are “well off the mark.”

Amaro, however, cautioned that the combination of expected ECB rate hikes this year and a worsening inflation outlook requires careful management. “Euro weakness shouldn’t be interpreted as an isolated development,” he said.