The dollar opened the week trading near a 17-month high, despite weaker U.S. labor-market data reducing expectations for an interest-rate increase by the Fed this month. At the same time, France’s fiscal difficulties and political uncertainty are weighing on the euro, strengthening demand for the dollar and other traditional safe-haven assets.

French Fiscal Concerns Keep Pressure on the Euro

The euro traded around $1.1246, close to its lowest level since May 2025, after posting four consecutive weekly declines. France’s rising debt burden and concerns over political deadlock ahead of next year’s elections have added pressure to the common currency.

The concerns extend beyond foreign exchange markets. A global bond selloff last week pushed borrowing costs to levels not seen in years, while French government bonds came under significant pressure. Investors are also increasingly focused on the inflationary risks from higher oil prices, which could further complicate fiscal and monetary policy across Europe.

Bond Yields Continue to Support the Dollar

The dollar index, which measures the U.S. currency against six major currencies, stood at 101.97. The yield on the 10-year U.S. Treasury was 5.262%, below the 24-year high reached last week that sent a fresh shock through global markets.

Higher U.S. Treasury yields increase the relative appeal of dollar-denominated assets, while global bond-market stress can encourage capital flows toward the U.S. currency as a traditional safe haven. If volatility across interest-rate markets remains elevated, cyclical currencies and carry-trade positions, along with the euro, could remain under pressure.

Fed Expectations Reshape the Interest-Rate Outlook

A significant part of the dollar’s recent strength has been driven by expectations that the Fed could raise interest rates in the coming months. However, employment data released Friday showed U.S. job growth slowed more than expected in September, prompting markets to sharply reduce the probability of an October rate increase.

Markets now price a 78% probability that the U.S. central bank will leave rates unchanged in October, compared with just 36% a week earlier. Investors still expect a rate increase in December and two additional increases during the first half of 2027. Some analysts, however, argue that current pricing may be too aggressive, particularly if oil prices decline or global growth weakens.

The next phase for the dollar and euro will depend on a combination of Fed policy, U.S. Treasury yields, energy prices and political and fiscal developments in France. Investors will also monitor U.S. inflation and employment data, alongside France’s ability to stabilize its public finances. Further deterioration in debt markets or renewed interest-rate volatility could continue to favor the dollar, while greater political stability in France and easing inflationary pressures could give the euro room to recover.