The euro slid to as low as $1.1161, its weakest level since May 2025 in Asian hours after clocking four straight weekly declines, weighed down by France's debt levels and concerns about political gridlock ahead of next year's election.

The single currency was last down 0.67 percent at $1.1178, while weakening 0.4 percent against Swiss franc and sliding 0.34 percent against sterling.

"The French politics trade that many expected would escalate this winter as April 2027 elections neared […] is here now," said Brent Donnelly, president of foreign exchange trading at analytics firm Spectra Markets.

"It’s not completely obvious what might fix things here as any budget promises made by the French government now are not super credible with a change of power coming soon."

Markets are also still reeling from last week's bond rout, which drove global borrowing costs to multi-decade highs and pummelled French debt as investors fretted over inflation risks from soaring oil prices.

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French bond futures dipped 0.13 percent, close to record lows it has been hugging in the past few weeks.

The yield on US 10-year Treasury notes was at 5.262 percent, as some calm returned following a spike to a 24-year high last week that rattled markets.

Sterling slipped 0.24 percent to $1.32064, while the Japanese yen changed hands at 157.92 per dollar. That left the dollar index, which measures the US currency against six major units, up 0.47 percent at 102.37.

"The dollar is the main winner in the current environment as not only is the rise in Treasury yields boosting the appeal of US assets, but the broad selloff in debt globally is fueling safe-haven flows into the greenback," said Matthew Ryan, head of market strategy at Ebury.

OCBC strategists said if rate volatility remains elevated, pressure on carry trades, cyclical currencies and the euro is likely to persist, while traditional havens such as the Swiss franc and the dollar should remain supported.

Fed rate path

Apart from the euro's troubles, much of the dollar strength in recent weeks has come from traders pricing in Fed rate hikes in the coming months. However, data on Friday dented those expectations after US job growth slowed more than expected in September.

Mansoor Mohi-uddin, chief macro strategist at Bank of Singapore, said the data showed the labour market is not overheating despite inflation staying above the Fed's 2 percent target since the pandemic. He expects interest rates to be left unchanged this month.

Traders are now pricing in a 78 percent chance of the US central bank holding rates steady in October, compared to 36 percent a week earlier, CME FedWatch tool showed. They still expect a hike in December and another two in the first half of 2027.

Analysts though think the market pricing is aggressive.

Jefferies strategist Mohit Kumar said the firm's base case is for one hike each from the Fed and the European Central Bank. "By the time we come to March, either oil prices would be lower or if we are wrong and oil prices are elevated, we are talking slower growth," he said.

"In either scenario, we do not see central banks delivering the rate hikes currently priced in."

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