The euro at its lowest for 17 months: why the single currency is falling

What happened this Monday, 5 October

According to Zonebourse (as reported by Boursorama), the euro started the week under pressure, continuing a slide that began at the end of August. The movement accelerated with tensions over French debt, and then with a rumour of early elections in Spain that emerged over the weekend.

Key figures:

• EUR/USD: 1.1193 at Monday's opening, the lowest for 17 months

• 5 consecutive weeks of decline for the euro

• +1.1% for the dollar index (DXY) over the past week

• EUR/CHF: 0.9292, down by 1.5%: the Swiss franc acts as a safe haven

In terms of positioning, CFTC data cited by XTB shows that speculative bets on a falling euro have reached a record level, even surpassing the peaks of the 2011-2012 crisis.

France at the heart of the storm

This time, the main driver of the decline does not come from Washington, but from Paris.

The best gauge of investor distrust towards the euro is the yield spread between French debt (OAT) and German debt (Bund). This Monday, it reached 147 basis points. This is approximately twice its average over the last two years, and four times its level from five years ago.

Concretely, markets are demanding an increasingly high risk premium to lend to the French state. And they are beginning to fear contagion to the rest of the eurozone, echoing the sovereign debt crisis of 2011-2012. Rumours of early elections in Spain have only added to the nervousness.

A safeguard exists, however: the ECB has so-called "anti-fragmentation" tools to contain the widening of yield spreads between member states. Several analysts, including those from OCBC bank, believe that these tools limit the risk of a systemic crisis, even if they do not prevent pressure on the currency.

Across the Atlantic, a dollar boosted by interest rates

The weakness of the euro is also a reflection of the strength of the dollar.

• US interest rates at their highest since 2007: the yield on 10-year US government bonds surpassed 5.30% last week.

• A significant interest rate differential: the Fed is between 3.75% and 4.00%, while the ECB is at 2.50%. Capital is attracted to dollar yields.

• A resilient US economy, which keeps alive the idea that the Fed will not cut rates anytime soon.

• The geopolitical context: tensions around the Strait of Hormuz are keeping oil at a high level, which strengthens the demand for the dollar as a safe haven.

Paradoxically: inflation is rising in the eurozone (an acceleration to 3.6% year-on-year was expected for September, compared with 3.2% in August), but this is not supporting the euro. This inflation is largely imported via energy, and the ECB is showing caution: markets doubt that it will raise its rates as quickly as the Fed.

The Swiss franc plays the safe-haven card (again)

For businesses and individuals in the Franco-Swiss region, the other movement to watch is that of the franc. The euro fell to 0.9292 Swiss francs, down 1.5% over the period. During phases of stress in the eurozone, the Swiss franc traditionally attracts capital seeking safety.

For a cross-border worker paid in francs, this is good news. For a French company buying from Switzerland, the bill becomes heavier.

Who wins, who loses when the euro falls?

A weak currency is neither good nor bad news in itself. It all depends on which side of the transaction you are on.

Those who lose out:

• Importers who pay their suppliers in dollars: for the same dollar bill, the cost in euros increases. An order of 100,000 dollars cost around 83,000 euros in January; it costs nearly 89,000 today.

• Companies dependent on energy and raw materials, mostly priced in dollars.

• Travellers heading to the United States or Switzerland.

Those who win:

• Exporters to the United States: their products become more competitive, or their margins in euros increase.

• Companies that collect payments in dollars or Swiss francs.

• Tourism in Europe, which becomes more attractive to American visitors.

And now? Signals to watch

Analysts are divided. Some see this decline as a temporary excess before a rebound. Others believe that as long as the OAT-Bund spread remains high, the euro will remain under pressure. No one can predict the future with certainty, but a few indicators will set the tone in the coming weeks:

1. The OAT-Bund spread: its evolution is the barometer of confidence in French debt.

2. The political situation in Spain and, more broadly, the fiscal stability of the eurozone.

3. Employment and economic activity figures in the United States, which guide expectations for the Fed.

4. The ECB's stance, torn between fighting inflation and maintaining financial stability.

5. Oil prices, linked to tensions in the Middle East.

One thing is certain: after months of relative stability, volatility is back in the foreign exchange market. For any business buying or selling outside the eurozone, now is the time to look closely at currency flows.

Sources

• The euro at its lowest for 17 months — Zonebourse via Boursorama

• EUR/USD at lowest since May 2025 — XTB

• Euro: Fragmentation fears weigh on EUR — OCBC via FXStreet