Euro Falls as French Protests Escalate, Debt Worries Persist

By Renae Dyer

The euro fell sharply Monday, dropping to a 16-month low against sterling and a three-month low against the safe-haven Swiss franc, on worries about French civil unrest and fiscal risks.

Protests over France's cost of living crisis escalated at the weekend, causing damage to storefronts and leading to thousands of arrests.

Yields on French government bonds rose in response, exacerbating concerns about the country's massive debt pile as the government has struggled to pass its budget proposals aimed at reducing the deficit.

"Political unrest in France, softer European sentiment and questions around fiscal stability continue to weigh on the single currency," Tickmill Group's Patrick Munnelly said in a note.

The euro fell to a low of 0.8404 British pounds and dropped to 0.9224 Swiss francs in European morning trade, LSEG data showed. Against the dollar, the euro fell 0.3% to $1.1210.

The spread between 10-year French and German yields hit a two-week high of 146 basis points, according to LSEG data, as French yields rose more than 10 basis points, significantly outpacing increases in German yields.

"With the European Central Bank entering its quiet period later this week, markets will have limited official guidance as they assess whether French risk remains localised or spills into broader eurozone [government-bond] spreads," Munnelly said.

The protests in France spilled over into neighboring European nations, including Italy.

The social unrest will reinforce investor concerns over outcomes from next year's elections in France and Italy, MUFG Bank currency analyst Lee Hardman said in a note.

The probability of France's far-right National Rally leader Marine Le Pen winning the presidential election has increased, encouraged by further evidence of growing public unease, he said.

"We expect heightened fiscal and political risks in France to remain a headwind for euro performance heading into next year."

France's troubles have dampened expectations that the European Central Bank could raise interest rates at its next meeting on October 29. Markets price just a 10% chance of another 25 basis-point rise in the deposit rate this month from the current level of 2.50%, although hikes are expected in the coming months, LSEG data showed.

"We stick to our forecast of a December hike, to 2.75%," UBS Global Wealth Management economists said in a note.

Rates could even peak at 2.75% if events in France or the broader tightening in financial conditions via higher bond yields convince the ECB to stop earlier, they said.

-Write to Renae Dyer at renae.dyer@wsj.com

(END) Dow Jones Newswires

October 19, 2026 07:26 ET (11:26 GMT)