Investing.com – The euro drifted near 17-month lows on Thursday, limping toward its fifth consecutive weekly decline as lingering French fiscal anxieties continued to sap confidence in continental assets, even as the dollar’s relentless advance took a breather.
The single currency hovered near $1.1200, remaining severely hobbled after dropping to its lowest level since May in earlier sessions. The euro’s persistent weakness reflects a broader liquidation of French sovereign assets that has sent shockwaves across European debt and foreign exchange bourses throughout the week.
The U.S. Dollar Index held firm around 102.30, consolidating near 18-month peaks after a 0.3% gain on Wednesday. Meanwhile, the Japanese yen traded flat to slightly weaker around 158.17 per dollar, trapped between rising global bond yields and domestic fiscal intervention warnings.
French fiscal shadow dominates Euro trajectory
Forex trading desks highlight that the euro’s five-week downward drift is rooted in deep structural fears surrounding France’s budget deficit, which is projected to reach 5.4% of GDP – well above the European Union’s 3% limit.
Analysts at DBS noted that French fiscal headwinds remain the primary anchor on the single currency, with international investors demanding an elevated risk premium to hold Eurozone exposure.
Bank of France Governor Emmanuel Moulin emphasized on Wednesday that while France’s fiscal position is “serious,” the remedy must come from domestic budget consolidation rather than European Central Bank intervention – effectively telling markets that the ECB will not step in to artificially suppress French borrowing costs.
The ongoing liquidation of French paper has pushed 10-year OAT yields toward 4.90% and blown spreads over German Bunds past 140 basis points, spilling over into Italian and Greek debt while keeping the euro firmly pinned to the floor.
“France’s widening borrowing premium over Germany reflects concerns about fiscal credibility and the ability to support its debt burden,” said Luke Davis, founder & chief market strategist at Bull Market Blueprint.
The ECB is set to publish the account of its recent monetary policy meeting, with traders scanning the readout for insight into how policymakers weigh rising energy inflation against widening sovereign bond spreads.
ECB Chief Economist Philip Lane is scheduled to speak later in the day, with markets watching closely for further commentary on whether tighter financial conditions will limit the need for additional rate hikes.
