FOREX-Euro set for biggest weekly fall in months vs dollar as France fiscal trajectory weighs

The ​euro was set for a fourth straight weekly fall against the ‌US ​dollar, its steepest decline in around four months, as concerns about France's fiscal trajectory and the Federal Reserve's hawkish shift in mid-September weighed on sentiment. After falling a sharp 0.77% on Thursday, the euro was broadly stable on Friday as oil prices droppedon talks over diesel and crude ‌stock releases. The single currency was down 0.05% to $1.1240 at 1127 GMT, and was on track for a 1.35% weekly fall, the biggest since mid-May.

The dollar often draws support from higher oil prices, as investors cut exposure to currencies of major energy importers such as the euro and yen, which are seen as more vulnerable to a rise in crude costs. The dollar index, which measures the ‌US currency against six rivals, was down 0.1% at 102.03, but was set for a 1.01% gain this week, its third consecutive rise.

The US central bank raised rates and ‌signalled more hikes in mid-September, with Chair Kevin Warsh reaffirming the Fed's independence despite repeated calls from US President Donald Trump for lower borrowing costs, leading markets to firm bets on further tightening. “Layered on top of worries about low European gas storage, already high energy prices, persistent competition from China, a weakened chancellor in Germany and the risk of hybrid attacks from Russia, the outlook for the euro is clearly on a weakened footing relative to last year,” said Jane ⁠Foley, senior ​forex strategist at Rabobank, flagging that France’s budget and political ⁠backdrop have weighed on the currency.

European Union countries discussed a French proposal on Friday to release diesel stocks in response to US pressure to help cool surging prices. Euro zone inflation is likely to increase in the coming months, ⁠keeping pressure on the European Central Bank to raise rates.

French and Italian government bonds have come under selling pressure in recent weeks amid expectations for rising policy rates and growing political risk as 2027 elections loom, ​with French 10-year yields jumping to their highest level since 2002 on Thursday. The yield gap between French bonds and safe-haven German Bunds – a market gauge of the risk premium ⁠that investors demand to hold French debt – widened to more than 150 basis points on Friday, the highest level since the euro zone's sovereign debt crisis in 2011.

The selloff showed signs of spreading to debt-laden countries such as Italy and Greece, ⁠despite ​their improved fiscal trajectories. UBS said current levels offered an attractive opportunity to gradually build euro exposure, arguing France's fiscal challenges were unlikely to trigger an imminent funding crisis and that a credible consolidation plan could restore confidence.

ATTENTION SWITCHES TO US PAYROLLS Investor focus will be on the US employment report due later in the day, with data expected to show that job growth ⁠slowed in September. The unemployment rate is forecast to remain unchanged at 4.1% for a third straight month.

The report comes after data on Wednesday showed US consumer prices rose less than ⁠expected in August, along with downward revisions to July's ⁠figure, leading traders to rein in wagers of a rate hike from the Federal Reserve later this month. Two of the Fed's top policymakers this week staked out an unusually clear case for taking in more data before deciding about another hike.

Traders are pricing in a 72% ‌chance of the Fed standing ‌pat in October, compared with 36% a week earlier, according to the CME FedWatch tool.