By Chuck Mikolajczak
NEW YORK, Oct 7 (Reuters) - The euro tumbled on Wednesday as French bonds came under renewed pressure on fiscal concerns, while the dollar advanced as investors awaited the minutes from the most recent Federal Reserve meeting for clues on the central bank's policy path.
Yields on euro zone bonds rose, with those of more indebted countries spiking more sharply than those of safe havens such as Germany as French fiscal worries dragged on and oil prices came back into focus.
The French
10-year yield surged 14.9 basis points, on track for its biggest daily jump in two weeks, at 4.8959% while the German 10-year bond yield edged up 0.8 basis point to 3.489%.
"The case in Europe is that for a while they've operated a bit in a welfare-state type mode, spending a lot of money, not really bringing in a lot of revenue, and it's finally biting them. Considering also the fact that everybody has had to spend more money on energy, the outlook is not good," said Juan Perez, senior director of trading at Monex USA in Washington.
"The focus is on Europe, and it's a very, very negative one."
The euro slumped 0.65% at $1.1185, closing in on the 17-month lows hit on Monday.
GREENBACK GAINS AHEAD OF FED MINUTES
The dollar index, which measures the greenback against a basket of currencies, climbed 0.41% to 102.33 ahead of the minutes from the Fed's September policy meeting, when it raised interest rates for the first time since 2023 to contend with inflation.
The minutes are expected to show a much broader debate than reflected in the unanimous decision to raise interest rates, with possible implications for the US central bank's next policy steps.
Recent comments from many Fed policymakers have been supportive of more rate hikes, although Federal Reserve Bank of New York President John Williams and Vice Chair Philip Jefferson last week expressed a preference for patience in additional rate increases.
The greenback was also supported by a rise in energy prices, as oil prices advanced on continued Middle East supply risks and a storm heading for oil-producing regions in the US.
"We already kind of understand the dynamic that in a time when it's difficult to access energy resources, the US dollar is going to spike," said Perez.
The chance of a rate hike of at least 25 basis points at the Fed's meeting later this month stands at 21.6%, from about 38% a week ago, according to CME FedWatch, but markets are pricing in an 82.8% chance of a hike at the Fed's December meeting.
FRENCH DEBT UNDER PRESSURE
Bond yields around the world have climbed in recent weeks due to expectations of central bank rate hikes as well as concerns about government finances. French debt is under growing pressure as politicians struggle to curb the budget deficit ahead of a divisive election in 2027. The calling of a snap election in Spain added to the pressure on the euro.
But the euro rebounded on Tuesday after far-right French presidential candidate Marine Le Pen raised her target for spending cuts to €140 billion ($158 billion) from €125 billion in savings originally planned if she wins power in 2027.
France's economic situation is serious, given the rise in its borrowing costs, but the country does not at this point need help from the European Central Bank, Bank of France head Emmanuel Moulin said.
Sterling weakened 0.45% to $1.3212 against the greenback but hit its highest level since June 2025 against the euro.
Against the Japanese yen, the dollar edged up 0.03% to 158.16. The Bank of Japan's new policymaker, Ayano Sato, said in an interview with the Kyodo news agency that she supports the idea of raising interest rates in several stages.
(Reporting by Chuck Mikolajczak; additional reporting by Medha Singh and Rocky Swift; Editing by Mark Potter and Nick Zieminski)
