France drags the euro to the bottom. The market now sees what it last saw in the 2011 debt crisis
The euro is at its weakest in 17 months, even though the ECB is raising rates. Such a decline doesn't give exporters an advantage, but it does send your portfolio a bill – or a bonus. It depends on what you hold and what currency you calculate in.
Key points
The euro fell to its lowest level in 17 months, even though the ECB has raised rates twice since June.
The spread between French and German bonds jumped from 85 to around 150 basis points in a single month.
The textbook rule that a weak currency helps European exporters hits one major snag this year.
The ECB's rescue tool has existed since 2022, but inflation at 3.8% is tying its hands.
Part of this year's gains in US stocks in a euro portfolio didn't come from the stocks, but from something completely different.
A currency that falls even when rates are rising
When a central bank raises interest rates, its currency should strengthen. Higher rates attract capital, capital buys the currency, the currency rises. That's how it works in textbooks and usually in practice. This year the euro is breaking that logic.
The European Central Bank has raised rates twice since June, most recently on September 10 to 2.50%. Yet on Monday, October 5, the euro fell to $1.1161, its lowest since May 2025. It has four straight weekly losses behind it and has lost roughly 7.5% from its January high around 1.2075. The dollar index, on the other hand, reached 102.23, its highest since April 2025.
A currency that weakens despite rising rates sends a clear signal: the market is no longer pricing interest rates, but risk. At this moment the euro is behaving not like a reserve currency, but like a currency for which investors demand a risk premium. And that difference decides whether a weaker euro helps or hurts your portfolio.