Euro remains on the back foot

Friday’s softer than expected US jobs report provided only fleeting relief for EURUSD, with the single currency under pressure again at the start of this week having lost a good deal of ground last week amid tensions in Euro area bond markets. It has fallen to a circa 17-month low of around $1.1175 against the dollar this morning, after closing out Friday just north of $1.1250 (down almost 1.5 cents on the week), and has dipped to about £0.8465 against sterling, down almost 1.5 pence from a week ago and just shy of its 2026 to date low of £0.8455 reached back in July this year. The pound is a touch weaker against the dollar this morning, trading at around $1.3215 having ended last week at about $1.3250.

There was a respite of sorts for French government bonds on Friday with 10- and 30-year yields falling by 5-10bps on the day (albeit they still ended some 20bps higher on the week) but 2-year yields climbing further (+5bps). However long-dated yields are nudging higher again this morning and spreads over German bond yields – which are heading south at the start of play – are widening out further, with the 10-year spread now at the kind of levels that prevailed during the Euro area “debt crisis” in 2011-2012. Elsewhere, US yields ended a few basis points higher on Friday, despite the weaker than forecast jobs report. In equity markets, both European and US stocks rallied at the end of the week, gaining around 1% on Friday, though European indices are softer at the open this morning.

The US economy added 29k jobs in September according to Friday’s payrolls report, a good bit less than the +90k consensus forecast, while there was also a modest downward revision to the August outturn. The unemployment rate ticked up last month, to 4.2% from 4.1% in August, but was still down on September 2025 (when it stood at 4.4%), while the year-on-year growth in hourly earnings continued to ease, dipping to 3% last month. All told, the latest report is consistent with the Fed’s view  that labour market conditions are pretty stable at present, allowing it to focus on the job of getting inflation back to target.

Looking to the week ahead, the focus is likely to remain on the situation in Euro area bond markets, particularly France, while on the economic data front, releases of note include the ISM services index (today) and University of Michigan consumer confidence index (Friday) in the US.  The Fed and ECB publish the minutes of last month’s monetary policy meetings on Wednesday and Thursday respectively.