📊 FX Market Update: Dollar Near 17-Month High as French Debt Crisis Weighs on Euro.

USD – The dollar continued to strengthen yesterday as French bond markets came under heavy pressure. Focus today turns to US non-farm payrolls, with employment expected to slow to 90K, while the Fed’s rate outlook could shift significantly depending on the data.

EUR – The euro weakened sharply as concerns over France’s fiscal position intensified, with French-German bond yield spreads widening dramatically. Markets will be watching closely to see whether the sell-off continues or stabilises.

GBP – Sterling weakened against the dollar as French debt concerns dominated markets, although it continued to benefit against the euro. GBP/EUR has now gained 1% since last Friday, with US non-farm payrolls and eurozone debt dynamics likely to remain key drivers today.

USD: The dollar continued to push higher yesterday as the market focused on a sharp sell-off in French government bonds. The euro was the biggest loser, while the safe-haven dollar gained broadly, although the Swiss franc was the strongest performer, with EUR/CHF falling 1.3% across the session. A sticky oil price and hawkish Federal Reserve expectations are also continuing to support the dollar. The focus in the US today will be on non-farm payrolls, with consensus expecting employment growth to cool from 162K in August to 90K in September. Markets are currently assigning a 28% probability to a Federal Reserve rate hike this month, although that could fall to zero following a downside surprise today – or rise significantly if the US economy proves stronger than expected.

GBP: Sterling took collateral damage against the dollar yesterday as French debt concerns dominated markets, although the move helped turbocharge the GBP/EUR rally. That pair has now gained 1% since last Friday. With little major UK economic data due today, US non-farm payrolls and eurozone debt dynamics are likely to dominate for sterling again today.

EUR: Mounting concerns about the lack of willingness for fiscal tightening in France came to a head yesterday as French-German yield spreads widened dramatically. The 10-year French government bond yield was 60bps above Bunds in February, but that gap rose to 146bps yesterday. The sell-off saw the euro lose almost 0.8% on the day. If concerns continue to spread, the euro could come under further pressure, although we could see it recover if market panic subsides.