Trading on Tuesday left the euro barely above a 17-month trough, with bond markets across the euro zone regaining some stability after the previous session's strain on French government debt had weighed on the currency. Climbing Treasury yields lent further support to the dollar, which held near its strongest point since April 2025.

Trading just under $1.12, the euro held fractionally below its prior-session trough of $1.116 — a level not touched since May 2025 — while carrying forward a cumulative decline of more than one percent from the week before. Debt concerns in France, compounded by political paralysis there, have weighed on the shared currency, while a forthcoming snap election in Spain introduces an additional layer of uncertainty for the euro.

Elevated borrowing costs in France have begun spreading pressure across the wider euro zone, with the currency's decline adding another layer of concern for those setting monetary policy. One analyst noted a distinctly downbeat outlook for the euro.

Commonwealth Bank of Australia strategist Joseph Capurso placed the euro's trajectory below the $1.10 mark, noting that a meaningful drop in oil prices or progress by France in containing its budget deficit — the latter of which he viewed as unlikely in the near term — would be needed to push the currency higher. French bond yields edged down by close to 0.1 percentage points on Tuesday after oil prices softened modestly, taking some pressure off concerns about a widening debt selloff.

When bond prices climb, the return attached to those securities falls — and the reverse holds equally true.

Elsewhere in currency markets, US Treasury yields — which touched levels not seen in decades when trading opened earlier in the week — continued to underpin a resilient dollar. Trading near 102.16, the dollar index held broadly steady after touching a peak of 102.53 in the prior session — a level not seen in roughly 18 months.

Weak employment data trimmed the probability of a Federal Reserve rate move this month, yet the dollar held its ground, a development market participants interpreted as a sign the central bank retained scope to tighten financial conditions further. Probability data from the CME FedWatch Tool placed an October rate increase at 22%, with that figure climbing to roughly 85% by December.

ING currency strategist Francesco Pesole noted that the dollar had held onto its gains at the week's opening, pointing to persistent weakness in the euro and upward pressure on global bond yields as contributing factors. Monday's figures on services-sector activity in the US showed a deceleration through September, as firm domestic demand placed strain on supply chains and lifted the cost of business inputs, a combination that points toward inflation staying elevated well into the following year.

The dollar edged up 0.2% against the yen to reach 158.21, while the pound held broadly steady at $1.323. Three people with knowledge of the bank's internal deliberations told reporters that Japan's central bank is on course to communicate, within the current month, that core price growth has largely converged with its 2% benchmark — a development those sources linked to a broader openness toward further rate increases over the months ahead.

Trading in the Australian dollar saw the currency edge down by 0.1 per cent, settling at 0.696 US dollars.