Dollar Hits 17-Month High as French Fiscal Woes Weigh on Euro

The dollar opened the week at its strongest level in seventeen months, buoyed by a shift in how traders were calculating the odds of Federal Reserve action. On Monday, the greenback held firm as markets absorbed the implications of Friday's jobs report—a disappointing September employment figure that suggested the American labor market was cooling faster than expected. That single data point rippled through currency markets, reshuffling expectations about whether the Fed would raise rates this month. Where traders had given a 36 percent chance of a rate hold just a week earlier, they were now pricing in a 78 percent probability that the central bank would leave rates unchanged in October.

The euro, meanwhile, was struggling. It sat at $1.1246, having fallen to its lowest point since May 2025 after four straight weeks of declines. The pressure came from two directions at once: France's mounting debt levels and the political uncertainty ahead of next year's election were spooking investors, while a broader global bond market selloff was making the common currency look increasingly fragile. Treasury yields had climbed to their highest level in twenty-four years the previous week, sending shockwaves through debt markets worldwide and forcing investors to reassess their holdings.

The broader currency picture reflected a clear flight to safety. The dollar index, which tracks the greenback against six major currencies, stood at 101.97. Sterling fetched $1.3241, while the Japanese yen was trading at 157.69 per dollar. The Swiss franc, another traditional haven, had strengthened more than 1 percent the previous week and was changing hands at 0.8286 per dollar. The Australian and New Zealand dollars, by contrast, were losing ground—the Aussie holding at $0.6956 and the Kiwi easing to $0.5610.

Analysts saw a clear logic to the dollar's dominance. Matthew Ryan, head of market strategy at Ebury, noted that the greenback was winning on multiple fronts: rising Treasury yields were making US assets more attractive to investors, while the global debt selloff was pushing money into the safest harbor available. "The dollar is the main winner in the current environment," he said, pointing to both the yield advantage and the broader safe-haven flows. Strategists at OCBC added that if volatility in rate markets remained elevated—a likely scenario given the uncertainty—the pressure on carry trades and cyclical currencies would persist, while havens like the Swiss franc and dollar would continue to draw support.

The question now was whether markets were pricing in too many rate hikes. The CME FedWatch tool showed traders still expecting a hike in December and two more in the first half of 2027, but several analysts were skeptical that the Fed would deliver that many increases. Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore, pointed out that the September jobs data showed the labor market was not overheating despite inflation remaining above the Fed's 2 percent target since the pandemic began. That suggested the central bank would have room to hold steady this month.

Mohit Kumar, a strategist at Jefferies, was even more cautious about the market's expectations. His firm's base case was for just one rate hike each from the Fed and the European Central Bank over the coming months. "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," he said. In either scenario, he argued, central banks would not deliver the number of rate increases currently priced into markets. The dollar's strength, in other words, might be built on an assumption that would not hold—a tension that could reshape currency markets once traders began to recalibrate their expectations.