In the opening days of October 2026, the U.S. dollar climbed to its strongest position in seventeen months, carried upward by the twin forces of diminished expectations for Federal Reserve rate hikes and a deepening crisis of confidence in France's fiscal and political future. The euro, burdened by four consecutive weeks of decline, settled near its lowest point in over a year — a quiet testament to how sovereign debt anxieties and electoral uncertainty can erode a shared currency's standing. Across global markets, traders sought the familiar shelter of the dollar and Swiss franc as borrowing
Dollar Hits 17-Month High as French Fiscal Crisis Weakens Euro
The dollar is the main winner in a flight to safety
Mark
So the dollar got stronger because the Fed might not raise rates as much as people thought. But wouldn't that normally make the dollar weaker, since higher rates attract money?
Mimi
You're right to notice the tension. The immediate catalyst was the jobs data showing the labor market isn't as hot as feared. That reduced rate hike odds for October. But the dollar also benefited from something else—a global flight to safety. Bonds everywhere were selling off, yields spiked to twenty-four-year highs, and investors got nervous. When that happens, money flows into the safest currency, which is the dollar.
Luke
But hold on—the market is still pricing in a December hike and two more in the first half of 2027. So it's not like rate hike expectations collapsed entirely. The shift was just about timing, not magnitude.
Mimi
Exactly. The October hike odds dropped from 36 percent to 78 percent unchanged. But the market still expects hikes later. The strategists quoted in the piece think that's too aggressive—they think the Fed will do fewer hikes than priced in.
Mark
And France's problems—how much of the dollar strength is actually about France versus just the general safe-haven thing?
Mimi
France's fiscal worries and political gridlock ahead of next year's election were specifically cited as reasons the euro was weak. The euro hit its lowest level since May 2025 after four consecutive weekly declines. So it's not just abstract—France's debt concerns and political uncertainty were actively pushing money out of the euro.
Luke
But we should be careful here. The source says France's debt levels and political gridlock "hit the common currency." That's one analyst's framing. We don't have hard numbers on how much of the euro's decline is France-specific versus broader eurozone weakness or the global bond selloff.
Mimi
Fair point. The bond rout was global—French debt got pummeled, but so did everything else. The euro weakness is real and documented, but isolating France's specific contribution is harder.
Mark
What about the other currencies? Why did the Swiss franc and yen also strengthen?
Mimi
Both are traditional safe havens. When markets get nervous, money flows into them. The Swiss franc gained over 1 percent the previous week. The yen moved to 157.69 per dollar. They benefit from the same risk-off sentiment that's helping the dollar.
Luke
Though we should note the yen's strength is being measured in a different direction—it's how many yen per dollar, so a higher number actually means the yen is weaker, not stronger. The reporting here is a bit ambiguous on that.
Mark
So the real question is whether the market's expectations for future Fed hikes are realistic.
Mimi
Right. The strategists think not. They're saying if oil prices fall, growth will be fine and the Fed won't need to hike much. If oil prices stay high, growth slows and the Fed still won't hike much. Either way, fewer hikes than the market is pricing.
Luke
But that's their base case. It's not certain. Oil could stay high and growth could stay strong, which would justify more hikes. The market might be right.
El Pulso
- The dollar index surged to 101.97, its highest in seventeen months, as a weaker-than-expected U.S. jobs report dramatically cooled expectations of a near-term Federal Reserve rate hike.
- The euro fell to $1.1246 — its lowest since May 2025 — after four straight weeks of losses driven by France's swelling debt burden and the political paralysis preceding next year's election.
- Ten-year U.S. Treasury yields, having spiked to a twenty-four-year high the prior week, retreated slightly to 5.262 percent, but the global debt selloff had already rattled bond markets from Paris to Tokyo.
- Traders swung sharply in their Fed outlook, with the probability of unchanged October rates jumping from 36 percent to 78 percent in a single week, though analysts at Jefferies warned markets may be overestimating future hikes.
- Safe-haven currencies dominated — the Swiss franc gained over one percent in a week, while cyclical currencies like the Australian and New Zealand dollars remained under quiet but persistent pressure.
In the opening days of October 2026, the U.S. dollar climbed to its strongest position in seventeen months, carried upward by the twin forces of diminished expectations for Federal Reserve rate hikes and a deepening crisis of confidence in France's fiscal and political future. The euro, burdened by four consecutive weeks of decline, settled near its lowest point in over a year — a quiet testament to how sovereign debt anxieties and electoral uncertainty can erode a shared currency's standing. Across global markets, traders sought the familiar shelter of the dollar and Swiss franc as borrowing costs reached generational highs, reminding observers that in moments of collective doubt, old certainties tend to attract the most capital.
The dollar began the week at a seventeen-month peak, propelled by two converging forces: a U.S. labor market report that fell short of expectations, and a deepening cloud of fiscal and political anxiety over France. Together, they reshaped how traders were thinking about interest rates on both sides of the Atlantic.
The euro bore the clearest mark of that pressure. Settling at $1.1246 on Monday, it had now fallen for four consecutive weeks, weighed down by France's mounting debt concerns and the uncertainty of an approaching election. The common currency sat at its lowest point since May of the previous year, vulnerable and exposed.
Elsewhere, the dollar's dominance was visible across the board. Sterling held at $1.3241, the yen moved to 157.69, and the Swiss franc — another traditional refuge — had strengthened to 0.8286 per dollar after gaining more than one percent the prior week. The dollar index stood at 101.97, reflecting broad greenback strength against six major currencies.
Underpinning all of it was the drama in bond markets. Ten-year Treasury yields had reached a twenty-four-year high the previous week before retreating slightly to 5.262 percent. French government bonds had been hit especially hard as investors fretted over inflation risks tied to rising oil prices. As Ebury's Matthew Ryan observed, surging Treasury yields were making U.S. assets more attractive while simultaneously pushing global investors toward the dollar as a safe haven.
The September jobs data had done the most to shift the immediate outlook. With employment growth coming in softer than forecast, traders rapidly repriced their Fed expectations — the probability of unchanged rates in October jumped from 36 percent to 78 percent in a single week. Markets still anticipated a December hike and two more in early 2027, but the urgency had faded.
Not everyone was convinced the market had it right. Jefferies strategist Mohit Kumar argued that only one rate hike each from the Fed and the ECB was likely in the months ahead — reasoning that by March, either oil prices would have eased or elevated prices would be slowing growth, leaving central banks with less reason to act. OCBC strategists added that as long as rate volatility remained high, carry trades and cyclical currencies would stay under pressure, while havens like the dollar and franc would continue to attract capital. The deeper question — whether current market pricing reflected genuine insight or merely organized uncertainty — remained unanswered.
The dollar opened the week at its strongest level in seventeen months, buoyed by a shift in how traders were thinking about the Federal Reserve's next moves. On Monday, the greenback held firm near those highs as two separate currents pushed it upward: disappointing U.S. employment data that made a rate increase less likely in the near term, and deepening fiscal anxieties in France that were dragging down the euro.
The euro had been under sustained pressure for weeks. It settled at $1.1246 on Monday, having fallen for four straight weeks and now sitting at its lowest point since May of the previous year. The weakness stemmed from two sources of concern: France's mounting debt burden and the political uncertainty hanging over the country as next year's election approached. These pressures had accumulated enough to leave the common currency vulnerable to any additional headwinds.
The broader currency picture showed the dollar's dominance. Sterling traded at $1.3241 against the dollar, while the Japanese yen moved to 157.69 per dollar in early Asian trading. The dollar index, which tracks the greenback's performance against six major currencies, stood at 101.97. The Swiss franc, traditionally another safe harbor in turbulent markets, had strengthened to 0.8286 per dollar, having gained more than 1 percent the previous week. The Australian dollar held relatively steady at $0.6956, and the New Zealand dollar eased slightly to $0.5610.
The catalyst for the dollar's strength lay partly in what had happened to U.S. interest rates and what traders expected to happen next. Treasury yields had spiked dramatically the week before, with the ten-year note reaching a twenty-four-year high that had rattled global markets. By Monday, that yield had retreated slightly to 5.262 percent, but the damage to confidence had been done. A broader selloff in debt markets worldwide had pushed borrowing costs to levels not seen in decades, and French government bonds had been hit particularly hard as investors worried about inflation risks tied to surging oil prices. Matthew Ryan, head of market strategy at Ebury, captured the dynamic plainly: the dollar was winning because Treasury yields were making U.S. assets more attractive, and the global debt selloff was driving money into the greenback as a safe haven.
The jobs data released on Friday had shifted expectations about what the Federal Reserve would do. Employment growth in September had come in weaker than anticipated, suggesting the labor market was not overheating despite inflation remaining above the Fed's two percent target since the pandemic began. Traders had responded by sharply reducing their bets on a rate increase in October. The CME FedWatch tool showed a 78 percent probability of unchanged rates this month, a dramatic swing from just 36 percent a week earlier. Markets still expected a hike in December and two more in the first half of 2027, but the immediate pressure had eased.
Yet not all analysts believed the market was pricing things correctly. Mohit Kumar, a strategist at Jefferies, argued that the firm's base case called for just one rate hike each from the Federal Reserve and the European Central Bank over the coming months. By March, he reasoned, either oil prices would have fallen or, if they remained elevated, economic growth would be slowing. In either scenario, central banks would likely deliver fewer rate increases than markets were currently expecting. Other strategists at OCBC noted that if rate volatility stayed high, the pressure on carry trades and cyclical currencies would persist, while traditional havens like the Swiss franc and the dollar would continue to benefit. The question hanging over markets was whether the current pricing of future rate hikes reflected reality or merely the market's best guess in an environment of genuine uncertainty.
Citas Notables
The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of U.S. assets, but the broad selloff in debt globally is fueling safe-haven flows into the greenback.— Matthew Ryan, head of market strategy at Ebury
By the time we come to March, either oil prices would be lower or if we are wrong and oil prices are elevated, we are talking slower growth. In either scenario, we do not see central banks delivering the rate hikes currently priced in.— Mohit Kumar, strategist at Jefferies
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