The euro has fallen to its lowest level against the US dollar since May 2025, extending its decline to roughly 4.2 per cent since the beginning of the year. The latest weakness reflects growing concerns over fiscal risks in France, where a sharp sell-off in government bonds has pushed 10-year yields close to 5 per cent, up more than 1.2 percentage points since the end of June. Investors are increasingly questioning France’s ability to consolidate its public finances, with the government facing both a deteriorating fiscal outlook and political constraints ahead of the 2027 presidential election. On 17 September, France raised its projected 2026 deficit to 5.4 per cent of GDP, above its 5 per cent target and leaving it on course to record the largest deficit in the euro area. The rise in French borrowing costs has also widened the premium investors demand to hold French debt over German Bunds to around 140 basis points, its highest level since the euro area sovereign debt crisis in 2011. These concerns are not limited to France, with Spain also facing renewed political uncertainty after Prime Minister Pedro Sánchez called a snap election on Monday, following the rejection of the government’s flagship housing bill last week. Looking ahead, a weaker euro could add to inflation by making imports more expensive, while higher borrowing costs are likely to weigh on growth, leaving the ECB facing a difficult balance.