The US dollar experienced fluctuations at the onset of trading on Tuesday, as a modest rebound in investor confidence supported higher-yielding currencies. However, escalating political risks in Europe persisted in challenging traders’ composure. The euro maintained its position at $1.1216, whereas the British pound experienced a modest increase of 0.1%, reaching $1.3308. The Australian dollar increased by 0.1% to $0.6986, whereas the New Zealand dollar also rose by 0.1% to $0.5668. Against the yen, the US dollar remained unchanged at 158.56 yen in anticipation of an auction of 20-year Japanese government bonds.
“FX markets reflected the improvement in risk appetite, with higher-carry currencies finding buyers,” said Chris Weston. “Europe was less convincing,” Weston said. “French sovereign risk is clearly being priced into European equities, but the euro’s resilience suggests traders aren’t yet treating it as a systemic European problem.” French authorities implemented curfews in multiple cities on Monday following widespread anti-government protests that have thrown President Emmanuel Macron’s concluding months in office into disarray.
In Italy, the government announced the deployment of 500 troops following two days of unrest. “The spread of French government bonds over Germany has come under renewed widening pressure against the backdrop of violent protests grabbing the headlines,” analysts wrote in a client note. “Tuesday will likely see more headlines around the 2027 budget, as (the French) Parliament is slated for a first formal vote on the revenue section of the finance bill.” The spread between French and German 10-year government bonds increased by 9.9 basis points on Monday, reaching a total of 147.3 basis points.
The yield on the US 10-year Treasury bond remained unchanged at 5.131%. The US dollar index, which measures the greenback’s strength against six currencies, ended two days of loss on Monday, rising 0.2% to 101.98. Against the Chinese yuan, the dollar remained unchanged at 6.6811 yuan in offshore trade following the People’s Bank of China’s decision to maintain interest rates, aligning with market expectations.
