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Euro weakens to fresh year-to-date lows on French bond turmoil

MUFG said the euro slid to 1.1161 against the US dollar and 176.41 versus the Japanese yen as French bond sell-off stoked fears of euro-zone fragmentation.

Reported · Written up by our desk · Major Pairs

MUFG’s Lee Hardman said the euro weakened at the start of the week as fears grew that destabilizing financial conditions in the euro zone were spreading, following a sharp sell-off in French government bonds, according to FXStreet.

The bank pointed to wider spreads versus German Bunds and signs of potential contagion toward Italian bonds, saying the euro was on track for fresh year-to-date lows against the US dollar and the Japanese yen.

MUFG cited a yield spread over German Bunds that it said had widened to just over 140 bps, about 60 bps wider than before the summer, adding that the speed of the French sell-off reinforced a sense of crisis in that market.

It also noted that investors were watching closely for further evidence of contagion in the region, with the euro reflecting a broader softening and declines to 1.1161 versus the dollar and 176.41 versus the yen overnight.

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