The euro fell to its lowest range against the dollar since May last year, briefly declining to $1.1185. Concerns over France's fiscal position and the escalation of protests weighed on market sentiment.
The euro fell to $1.1185 against the dollar and declined broadly against major currencies. The euro weakened during Asian trading, falling below $1.1223. The backdrop included France's fiscal problems and political uncertainty, while the 10-year German-French bond yield spread continued to reflect the sharp widening seen last week.
The euro's weakness spread to cross-yen pairs and European currencies. The euro-yen pair traded at ¥176.64, the euro-dollar pair at $1.1225 and the dollar-yen pair around ¥157.67. Compared with ECB reference rates, the euro-yen pair was down approximately 4.4%, the euro-dollar pair approximately 3.2% and the dollar-yen pair approximately 1.3%.
Protests over the French budget proposal escalated. Protests affected 1,027 lycées nationwide, with 222 blockaded; approximately 1,949 people were detained in a single day and 305 police officers were injured. The government included spending cuts of approximately €54 billion in the budget proposal and set a target of reducing the fiscal deficit as a percentage of GDP to the published figure of 5%.
Reduced expectations for an ECB rate hike and movements in the Japan-Europe interest-rate differential are also weighing on the euro. The ECB has set its deposit rate at 2.5%, while the Bank of Japan has continued raising rates, bringing its policy rate to 1.25%, narrowing the interest-rate differential between Japan and Europe. Going forward, ECB Governing Council and Bank of Japan meetings will be in focus and could affect the direction of the euro.