CurrenciesMarket noteTuesday 6 October 2026, 07:03
Euro falls to a 17-month low on French debt and Spain's snap election
Why is the euro falling? French bond yields jumped, Spain called a snap election, and the euro hit $1.1204, its lowest since May 2025. The figures behind it.
By The Notebook Desk
The euro fell to $1.1204 on Monday, its lowest since May 2025. The European Central Bank’s reference rate was last lower on 16 May 2025, at $1.1194. Why is the euro falling? The short answer is politics: a sell-off in French government bonds over the country’s debt, and a snap general election in Spain.
The fall has been steady. On the ECB’s Friday rates, the euro has lost ground in each of the last five weeks, from $1.1643 on 28 August to $1.1225 on 2 October. Last week alone it fell 1.6%. It is now 6.4% below its high for the year, $1.1974 on 28 January. In Asian trading on Monday it briefly touched $1.1161, Euronews reported.
Why the euro is falling: France
The main pressure comes from Paris. The yield on France’s 10-year government bonds rose to 4.90% on 2 October, from 4.63% a week earlier and 3.96% in mid-August, Banque de France data show.
German yields moved the other way. The Bundesbank’s 10-year yield fell 16 basis points on 2 October alone, to 3.46%, as investors bought German debt for safety. The gap between the two, the extra yield investors demand to hold French rather than German debt, widened from 103bp to 144bp in one week. In mid-August it was 78bp.
The worry is the size of France’s debt and the politics of reducing it. Public debt reached 119.0% of GDP at the end of June, up from 115.2% a year earlier, Insee reported on 29 September. In money it is €3,595.5bn. Three months earlier the ratio was 117.5%.
A wide French spread matters for the euro because it raises the question every investor in the currency asks in a crisis: whether trouble in one large member can spread to others. Last week’s sell-off also hit Italian, Belgian and Greek bonds, Euronews reported. Analysts at ING warned on Friday that the market could “easily add another 2% in risk premium to the euro” if the bond sell-off went on.
Spain adds to the pressure
Spain added a second political risk on Monday. Prime Minister Pedro Sánchez called an early general election after parliament rejected two of his minority government’s housing decrees on Friday, Euronews reported. The royal decree published on Tuesday dissolves the Congress and the Senate elected on 23 July 2023 and sets the vote for Sunday, 29 November. Spanish bonds took the news more calmly than French ones: Spain’s 10-year premium over German debt was about 65bp on Monday morning, less than half of France’s, Euronews reported.
Not only a euro story
The dollar has also been strong against most currencies. The Fed’s broad dollar index rose 2.8% between 10 September, the day the ECB raised rates, and 2 October. Over the same weeks the euro fell 3.5%. We reported on 29 September why the ECB’s rise did not lift the euro.
Expected rate moves do little to explain the euro’s fall this month, because markets expect both central banks to raise rates by December. Prices in the futures markets give an 84% chance that the ECB’s deposit rate is higher than 2.50% by its 17 December meeting, according to Central Bank Watch, and an 85% chance that the Fed’s range is higher by 9 December. US yields are much higher, though: the 10-year Treasury yield was 5.31% on Monday, Treasury data show, 1.84 points above the German 10-year.
What to watch
- 7 October: the minutes of the Fed’s September meeting.
- 8 October: the ECB’s account of its September meeting, for any comment on bond markets.
- 28 and 29 October: the Fed’s and the ECB’s rate decisions.
- 29 November: Spain’s general election.
- 18 December: Insee’s figure for French public debt at the end of September.
Disclosure
This is analysis and opinion, not investment advice.