Key facts
- The euro is on track for its fifth consecutive weekly decline against the dollar.
- The euro hit a 17-month low of $1.1161 on Monday.
- The euro was trading at $1.1211, down 0.3% for the week.
- The euro/sterling cross is near a 16-month low, down 0.3% on the week.
- U.S. yields are set for their largest weekly drop in about three months.
- The yen is poised for its fourth straight weekly decline against the dollar.
The euro was poised for its fifth consecutive weekly decline against the dollar on Friday, though selling pressure appeared to be easing. This slowdown coincided with a stabilization in France's bond market and a retreat in U.S. yields, which had been bolstering the dollar. The common currency had touched a 17-month low of $1.1161 on Monday, driven by concerns over France's high debt levels and the political challenges in implementing budget cuts, especially when contrasted with the strength of the U.S. dollar and economy. It has since recovered to trade at $1.1211, marking a 0.3% drop for the week and a more than 3% fall over five weeks. The euro also weakened against sterling, trading near a 16-month low. The euro/Swiss franc cross steadied after experiencing its largest weekly fall in 17 months. Analysts suggest that the recent moves in the euro may be overextended. "My take is all the moves are pretty stretched," said Matt Simpson, senior analyst at StoneX in Brisbane. "You probably only get two or three big moves a year on the euro and this has been one of them... but bearish momentum is waning (and) I'd tread really carefully at these lows." Concerns about France's fiscal situation were amplified by plans presented by far-right presidential candidate Marine Le Pen to cut the budget deficit, and by hard-left rival Jean-Luc Melenchon's call for the central bank to cancel government debts. Protests in France over education conditions on Thursday highlighted the delicate balance between social spending demands and market sensitivities. Macquarie strategists noted that "France's bond sell-off and the social unrest are now operating in a feedback loop. An intensification of the street riots could lead to higher bond yield spreads." Elsewhere, the dollar's gains slowed as U.S. yields were on track for their largest weekly drop in about three months. The yen was also heading for its fourth straight weekly decline, though the moves have been minimal in recent weeks. Vishnu Varathan, head of Asia-Pacific macro strategy at Mizuho Securities, described the dollar's position as "precarious pole position, flattered by a dismal euro and yen." The Australian dollar hovered around $0.6960 and sterling traded at $1.3233. The New Zealand dollar was experiencing its longest losing streak in over four years, heading for a seventh consecutive weekly decline due to its low interest rates compared to the U.S. Federal Reserve's policy rate.