The euro fell to a 16-month low against the dollar, weighed by France's fiscal woes.

Concerns about increased French government spending owing to political pressure have helped to widen the spread between French and German government bond yields to multiyear highs.

French 10-year government bond yields climbed to their highest since 2002 while 10-year German government-bond yields dropped sharply toward the end of last week, LSEG data showed.

Yields on France's sovereign bonds surged last week after news that France's public debt reached 119% of the country's gross domestic product and was projected to swell toward 122%, Maybank analysts said in a research report.

"What was most worrying is its plans to borrow a record 340 billion euros in 2027 to help finance its spending and for debt repayment," the analysts said. "There are signs of contagion as the yields of other debt-laden peripheral Eurozone economies surged higher as seen for Greece and Italy," the analysts added.

That weighed on the single currency in Asian trade Monday. The euro fell 0.7% to 1.1177 dollars after touching $1.1160 earlier, its lowest intraday level since late May 2025, LSEG data show.

Financial markets have trimmed expectations for interest-rate increases by the European Central Bank, analysts said. That would also cut support for the euro.

"ECB policymakers are contending with a renewed tightening in Eurozone financial conditions stemming from turbulence in the French sovereign bond market," said Lee Sue Ann of UOB's Global Economics & Markets Research in a research report.

"As such, we continue to expect the ECB to pause in Oct. and deliver one final 25-bps hike in Dec., with tighter financial conditions reducing the urgency for an immediate policy response despite higher-than-expected inflation," the economist added.