The euro’s latest slide reflects France-specific fiscal and political worries layered on top of a global bond selloff. The dollar has stayed firm even as traders sharply reduced expectations for an October Federal Reserve rate hike because elevated US yields, demand for US securities and safe-haven flows have continued to support it. Neither currency move is explained by rate expectations alone.
Market snapshot: October 1–5, 2026. Foreign-exchange prices and rate probabilities below are dated intraday or market-pricing observations, not live quotes or policy decisions.
What happened to the euro?
Reuters reported that EUR/USD touched $1.1161 in Asian trading on October 5, its weakest level since May 2025, before trading around $1.12. The pair had recorded four consecutive weekly losses against the dollar. A separate Reuters dispatch that morning cited an overnight low of $1.1160 and a later level of $1.1208. These are separate report snapshots, not competing claims about a single synchronized quote.
The decline followed a difficult September: Reuters reported on October 1 that the euro fell nearly 2.5% that month, its largest monthly decline since July 2025, while the dollar rose during a global bond selloff. That monthly change describes past performance, not a forecast.
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Why is the euro falling against the US dollar?
French fiscal and political risk has weighed on the euro
Markets have focused on France’s public finances and political uncertainty ahead of the 2027 election. Reuters reported that the French-German 10-year government-bond yield spread widened to about 150 basis points on the Friday before its October 5 report, the widest since the euro-area sovereign-debt crisis in 2011. The same October 5 report later put the spread at 145.50 basis points. The peak and subsequent reading are distinct observations.
The spread measures the extra yield investors demand to hold French debt rather than German Bunds. A wider spread can signal a higher perceived risk premium on French assets. Reuters linked investor concern to doubts about France’s ability to implement deficit-reduction measures and the difficulty of reaching compromises in a divided parliament. This is a market concern about fiscal and political risk, not evidence that France faces an imminent sovereign crisis.
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Saxo strategist Neil Wilson told Reuters on October 5: “France is the real deal in terms of risk premia for the euro.”
A wider bond selloff added pressure
France was not the only influence. Reuters described a broader government-bond rout driven by concerns about public finances, heavy issuance and elevated energy costs. On October 1, higher oil prices and inflation concerns were among the factors pushing yields up in the United States and Europe. Because the euro area relies on imported energy, rising energy costs can also be a currency headwind, but they are only one part of this episode’s explanation.
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Why is the dollar strong if Fed rate hike bets are easing?
Weaker-than-expected US September job growth, alongside downward revisions to employment figures for the previous two months, led traders to reduce expectations for an October Federal Reserve hike. But a change in the expected policy path is only one influence on exchange rates. Reuters also cited elevated US Treasury yields, foreign appetite for US securities and safe-haven demand during the global bond selloff as supports for the dollar. One October 5 dispatch said the dollar index had risen to its highest level since April 2025.
Reuters’ October 5 dispatches presented different snapshots of CME FedWatch pricing: one reported an 80% probability of the Fed holding rates in October, compared with 36% a week earlier; another reported an 18% probability of a hike, compared with 64% the prior week. These figures are broadly complementary framings, but they come from separate dispatches and should not be combined as if they were one synchronized reading.
BBH global head of markets strategy Elias Haddad told Reuters on October 5: “Tighter policy elsewhere and a growing case for an October Fed pause are US dollar headwinds. But US growth outperformance and strong foreign appetite for US securities keep U.S. dollar risks skewed to the upside.” The point is that easing hike expectations can work against the dollar while yields, relative growth expectations and demand for US assets support it.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What rate expectations do—and do not—tell you
Market-implied probabilities are snapshots of investor pricing, not announcements or promises by central banks. Reuters reported on October 2, citing LSEG data, that markets were pricing an 81.8% chance of an ECB rate hike in December. That probability reflected pricing at the time of the report; it did not establish that the ECB would raise rates. Likewise, October 5 pricing for a possible Fed hold or hike reflected market expectations, not a Fed decision.
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For this episode, it helps to separate three forces: France-specific risk affecting the euro, global bond-market pressures affecting yields and demand for safe-haven assets, and near-term expectations for Fed and ECB policy. EUR/USD is one bilateral exchange rate; a move in the pair does not by itself show how the dollar performed against every other currency.
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