Euro Falls as France Unrest Widens Bond Spread

That gap matters because it reflects rising investor unease over French debt risk and the broader ability of Paris to rein in spending while confronting social unrest. The government has asked some local authorities to impose curfews after a weekend of anti-government riots and looting, stoking speculation that political pressure on President Emmanuel Macron could intensify and bolster far-right leader Marine Le Pen ahead of next year’s presidential race.

“The markets seem to have clearly absorbed a reaction function: equity turbulence is enough to sharply scale back expectations for Fed tightening, even when inflation remains elevated,” said Francesco Pesole, strategist at ING. “That logic is likely tied to the wealth effect from markets, which many see as supporting the resilience of the U.S. economy.”

The dollar index rose 0.17% to 101.97, helped by a recovery in AI-related shares after last week’s selloff. The move added to the greenback’s appeal even as traders continue to price the Fed as on hold at its October 27-28 meeting and assign a 91% chance of a rate hike in December.

That leaves the dollar caught between two competing forces: support from stronger risk assets and lingering doubts over how far the Fed can tighten if markets wobble. Kevin Warsh’s recent comments suggested policymakers are in no rush to raise rates again, though he offered no timeline for further action.

Outside Europe, the Australian dollar gained after China’s economy rebounded to 4.5% annual growth in the third quarter, while the Canadian dollar held firmer after inflation came in at 3.1% in September and Bank of Canada Governor Tiff Macklem signaled more upward pressure on the inflation outlook from elevated oil prices. The yen weakened to 158.49 per dollar after Bank of Japan Governor Kazuo Ueda said core inflation was “quite close” to the 2% target, leaving the door open to additional rate increases.

For investors, the key near-term risk is whether France’s unrest spreads into a broader eurozone confidence shock, while U.S. currency direction will likely hinge on whether the AI-led stock rebound holds and whether that supports or undermines expectations for Fed policy.