Forex

Moody's Holds France at Aa3 After French Bond Selloff Sends Euro to a Weekly Loss

Moody's kept France at Aa3 with a negative outlook late Friday after a week in which French 10-year yields hit their highest since 2002 and the euro headed for a 0.43% weekly drop against the dollar.

Oct 24, 2026 - 12:15

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Moody's Ratings left France's sovereign credit rating unchanged at Aa3 with a negative outlook after markets closed on Friday, October 23, 2026, sparing the euro zone's second-largest economy a downgrade at the end of a week in which a selloff in French government bonds pushed the euro to a weekly loss.

Moody's decision

Moody's said it had concluded a periodic review and kept the rating at Aa3, which has carried a negative outlook since last October, Reuters reported. Bond markets had been pricing in a downgrade that would have brought Moody's in line with S&P Global and Fitch, both of which cut France's rating in 2025, according to Reuters and CNBC.

"The Aa3 rating assumes that a deficit-reducing budget for 2027 will be adopted, while financing costs and social tensions will abate somewhat in the next few months," Moody's said, according to Reuters. "The negative outlook reflects the increased risk that the fragmentation of France's political landscape will continue to impair the functioning of the country's legislative institutions," the agency said in its report, CNBC reported. Moody's noted that it could return the outlook to stable if French institutions are able to narrow the deficit.

The French finance ministry said the unchanged rating reflected the "credibility of the budget the government has put forward in the 2027 finance bill." The government is struggling to pass that bill, which targets a deficit of 5% of output in 2027 versus 5.4% this year, Reuters reported.

Bond market strain

France's benchmark 10-year bond yield hit 5.14% on Thursday, its highest level since July 2002, and the risk premium on French debt over German bonds reached its highest in 15 years, according to Reuters. The French finance ministry warned a month ago that the country's debt-to-GDP ratio is expected to reach 121.7% in 2027, and France faces more than $1 trillion of debt maturing by 2030, CNBC reported.

The pressure followed mass demonstrations over the cost of living and public services. CNBC said more than 500,000 people marched last weekend, and Interior Minister Laurent NuÃ±ez said France would deploy 70,000 police for protests planned for Saturday, according to Reuters.

Euro, yen and dollar on the week

Before the Moody's announcement, the euro was down 0.21% at $1.1191 on Friday and on track to end the week 0.43% lower, Reuters reported. Against the yen it touched 175.08, its lowest since October 2025, and was headed for a weekly decline of 1.1%. "The pressure in the European bond market has eased today, but Moody's review of France's debt rating late today poses a challenge," said Marc Chandler, chief market strategist at Bannockburn Global Forex.

The yen was at 156.9 per dollar and set for a weekly gain of about 0.7%, its best week since mid-September, helped by safe-haven demand after Thursday's selloff in AI-related stocks, Reuters said. "The yen has continued to trade at stronger levels at the end of this week, encouraged by more risk-off trading conditions," said Lee Hardman, senior currency analyst at MUFG. Data on Friday showed Japan's annual core consumer inflation exceeded the Bank of Japan's 2% target in September for the first time in nine months. The dollar index rose 0.25% to 101.82 on the day but was little changed for the week.

The Australian dollar rose again this week to about 70 U.S. cents, AMP reported, after Reserve Bank of Australia Deputy Governor Andrew Hauser said the inflation outlook looked "materially worse" than the central bank projected in August. Market pricing for a November RBA rate increase briefly reached nearly 70% after his speech before easing to about 40%, according to AMP.

Central banks next week

The Federal Reserve, the European Central Bank and the Bank of Japan all hold policy meetings next week and are expected to leave rates unchanged, Reuters reported. Traders see an 81% chance of a Fed hike in December, a 66% chance of an ECB hike in December and 61% odds of a BOJ increase in December, according to the news agency. Australia's September-quarter inflation data are also due next week, AMP said.

France's presidential election is scheduled for April 18 and May 2, 2027. Mike Bell, head of market strategy at RBC BlueBay Asset Management, told Reuters that pressure on French debt could intensify if all three major agencies cut France to BBB after the vote. "That's where it could really start to get more ugly," he said.