By Rae Wee and Harry Robertson
SINGAPORE/LONDON, Oct 6 (Reuters) - The euro steadied just above a 17-month low on Tuesday as euro zone bond markets stabilised, a day after the currency fell sharply on fears that stress in French bond markets could spread more widely.
The US dollar continued to trade at around its highest since April 2025, meanwhile, supported by rising US Treasury yields.
The euro was down less than 0.1% at $1.12, having slid to its lowest since May 2025 in the previous session at $1.116,
extending its more than 1% drop from last week.
The common currency has come under pressure due to worries about high debt levels and political gridlock in France, with an upcoming snap election in Spain adding to headwinds.
A sliding euro is also the latest warning sign for policymakers as surging French borrowing costs ripple across the broader euro zone.
"We're pretty pessimistic about the euro. We think it's going to go down to under $1.10," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
"For the euro to rise, you'd need a big decrease in oil prices," he said. "Another one would be them (France) starting to get their act together on reining in the budget deficit, though I think there's no chance of that happening anytime soon."
French bond yields fell almost 0.1 percentage points on Tuesday as oil prices dipped slightly, easing some of the worries about a spiralling debt selloff. Yields move inversely to prices.
In the broader market, the dollar stayed strong, drawing support from still-elevated US Treasury yields, which scaled multi-decade highs on Monday. The dollar index was last little changed at 102.16, having scaled an 18-month high of 102.53 in the previous session.
The greenback's strength has come despite reduced expectations for a Federal Reserve rate hike this month in the wake of weaker-than-expected US jobs data, as investors bet the central bank would still need to tighten policy further. According to the CME FedWatch Tool, the chance of a hike in October is at 22%, while it rises to around 85% for December.
"The dollar has continued to find support at the start of this week," said Francesco Pesole, currency strategist at ING.
"The euro’s idiosyncratic weakness is still playing a role, and so are global bond yields that keep pushing higher."
Data on Monday showed the US services-sector activity slowed in September, with strong domestic demand stretching supply chains and raising prices paid by businesses for inputs, indicating that inflation could remain high into next year.
Against the yen, the dollar rose 0.2% to 158.21, while sterling was little changed at $1.323.
The Bank of Japan may signal this month that underlying inflation has roughly hit its 2% target, three sources familiar with its thinking said, highlighting its readiness to raise interest rates again in the coming months.
Elsewhere, the Australian dollar slipped 0.1% to $0.696.
(Reporting by Rae Wee in Singapore and Harry Robertson in London; Editing by Shri Navaratnam and Xevi Fontdegloria)
