Euro falls to $1.1210 as French unrest and energy costs weigh

The euro fell 0.25% to $1.1210 on Monday, October 19, as concerns about France’s political stability and elevated energy costs weighed on the currency, Economic Times Markets reported in an agency-based account. The US dollar index gained 0.26% to 102.05 as investors reassessed American growth prospects and the direction of interest rates.

French President Emmanuel Macron rejected Interior Minister Laurent Nunez’s offer to resign after widespread weekend rioting, according to the Elysee presidential office cited in the report. The unrest renewed market concerns about the euro zone’s second-largest economy.

French borrowing premium remains elevated

The euro’s decline was smaller than its drop of more than 1% earlier in October, when French political tensions unsettled investors. Analysts cited in the account said more persistent pressure on the currency typically emerges when uncertainty in France spreads into wider doubts about the euro zone.

The gap between French and German 10-year government bond yields remained a closely watched measure of that risk. Earlier this month, the spread widened by about 40 basis points to more than 150 basis points, alongside rising risk premiums elsewhere in the currency bloc. On Monday, it was up 2 basis points at 141 basis points—below the earlier peak but still signalling a substantial borrowing premium for France.

Energy shock puts central bank responses in focus

Brent crude futures eased from a five-month high but stayed above $100 a barrel. European natural gas prices reached €89.13, described in the report as a four-year high; the quoted figure did not specify a pricing unit.

The account linked the broader support for the dollar, and pressure on energy-importing currencies such as the euro and yen, to higher oil prices since the conflict in Iran began in March. But the currency outlook also depends on whether central banks respond to energy-driven inflation with tighter policy.

Thu Lan Nguyen, Commerzbank’s head of foreign exchange and commodity research, said the relative responses of the Federal Reserve and European Central Bank mattered more for euro-dollar trading than oil prices in isolation. In her assessment, higher oil prices may offer the dollar limited support if investors do not anticipate a more aggressive Fed response.

The report said the Fed’s September rate increase had reinforced its inflation-fighting stance. Markets were nevertheless assigning an 87% probability to unchanged US rates this month and pricing in 75 basis points of cuts by the end of 2027. Expectations for the ECB followed a broadly similar path. These are market expectations, not policy commitments.

AI investment outlook complicates the dollar trade

Investors were also reconsidering whether the US growth and equity-market strength associated with the artificial intelligence boom would continue to support the dollar.

The report described a potential slowdown in AI-related spending as a risk under consideration, rather than an established outcome. Weaker investment could reduce economic growth and borrowing demand, potentially pulling Treasury yields and the dollar lower.

Yuan gains as yen and rupiah face separate pressures

The dollar edged up 0.05% against the yen to ¥158.15. Bank of Japan Governor Kazuo Ueda said underlying inflation was close to the bank’s 2% target, keeping further rate increases in view. At the same time, investors remained concerned that Prime Minister Sanae Takaichi’s spending plans could add to Japan’s public-debt burden.

The offshore yuan strengthened after Chinese third-quarter GDP growth came in slightly above expectations. The dollar slipped 0.05% to 6.6815 offshore yuan, its weakest level against that currency since June 2022. The account did not give the GDP growth rate.

Indonesia’s rupiah fell for a fourth consecutive session, losing 0.2% and trading near a three-month low. The pressure followed MSCI’s warning last week that it could move Indonesia’s equity market from emerging-market classification to standalone status. Indonesian equities had plunged 11.6% following the warning; the reclassification remained a possibility, not a completed decision.

The Australian dollar gained 0.4% to $0.6971. All quoted market levels reflect the report’s Monday snapshot rather than a live price service.