Euro Falters on French Unrest as Dollar Gains with Tech Stock Rebound

The euro fell against the U.S. dollar on Monday, pressured by investor concerns over France's political stability and fiscal health following a weekend of riots. The dollar, in contrast, was buoyed by a recovery in technology stocks, reversing some of last week's losses.

French Political Turmoil Weighs on Euro

Intensifying anti-government protests and riots in France have heightened political risk, directly impacting the common currency. According to a Reuters report, the French government has requested some local authorities to implement curfews to manage the unrest. The euro declined 0.24% to $1.1212 in response to the developments.

Market anxiety is also reflected in the government bond market. The yield spread between 10-year French government bonds (OATs) and their German counterparts, considered a safe-haven asset, widened to 147 basis points. This is a level not seen since the European sovereign debt crisis of 2011-2012 and is up from around 110 basis points in late September, signaling rising investor apprehension.

Analysts note the turmoil could bolster the political standing of National Rally leader Marine Le Pen ahead of next year's presidential election. Her anti-EU stance raises long-term questions about France's role in the bloc, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

Dollar Strengthens on Tech Rebound, Fed Outlook

The U.S. dollar found renewed strength as AI-related technology stocks rebounded from a sharp selloff last week. The dollar index (DXY), which measures the greenback against a basket of six major currencies, rose 0.17% to 101.97. Last week's tech-driven market decline had raised concerns about reduced capital inflows, weighing on the U.S. currency.

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"Markets appear to have a clear reaction function in mind: stock market turmoil is enough to drastically reduce Federal Reserve tightening plans, even with inflation running hot," said Francesco Pesole, an FX strategist at ING. He added that this suggests the dollar might not act as the primary safe-haven currency if stock market instability originates in the tech sector.

Recent commentary from Federal Reserve officials, including Chairman Kevin Warsh, has suggested policymakers are not in a hurry to raise interest rates again. However, according to Reuters, Fed funds futures traders are pricing in 91% odds of a rate hike in December, following an expected pause at the October meeting.

Other Major Currency Movements

Several other G10 currencies saw notable moves on Monday:

• The Australian dollar rose 0.49% against the greenback after data showed China's economy expanded at a 4.5% annual pace in the third quarter.
• The Canadian dollar gained 0.27% versus its U.S. counterpart, supported by hawkish comments from Bank of Canada Governor Tiff Macklem, even as September's annual inflation rate of 3.1% came in slightly below expectations.
• The Japanese yen weakened 0.35% to 158.49 per dollar, even as Bank of Japan Governor Kazuo Ueda signaled that underlying inflation was approaching the central bank's 2% target, suggesting scope for further rate increases.