The Swiss franc rose strongly Friday as the dollar eased on lower U.S. interest-rate rise expectations and as investors sought safety in the Swiss currency amid a widening gap between French and German government bond yields.

Mounting French fiscal concerns have sent French bond-yield spreads surging, drawing demand for the Swiss franc due to Switzerland's low debt and interest-rate levels. Investors were unimpressed after France's government proposed a 2027 budget containing 43 billion euros in cuts and cost savings on Thursday.

Markets meanwhile trimmed expectations for further U.S. interest-rate increases after Federal Reserve governor Philip Jefferson said at an event in Virginia Thursday that the central bank might need more time to assess the economy's direction before making further policy adjustments.

His comments followed similar remarks from New York Fed President John Williams earlier this week that indicated the Fed might wait until at least December to raise rates and caused the dollar to fall.

The DXY dollar index, which measures the dollar's value against a basket of currencies, fell 0.2% to 101.916 in Europe's morning trade after reaching a near 18-month high of 102.207 Thursday. Against the Swiss franc, the dollar fell to a one-week low of 0.8264 francs, reversing the previous day's move when it reached a 16-month high of 0.8382, according to LSEG data.

The Swiss franc gained particularly against the euro amid concerns about France, hitting a two-month high of 0.9290 per euro.

"Switzerland has a functioning debt brake, meaning its public debt is in no way comparable to that of other industrialised nations," Commerzbank foreign exchange analyst Michael Pfister said in a note.

"We had repeatedly emphasised that as the year drew to a close, the high deficits were likely to come back into focus, with the Swiss franc set to benefit," he said.

The spread between French and German 10-year government bond yields hit its highest since November 2011 at 152.34 basis points on Friday, according to LSEG.

The recent selloff in French bonds also raised questions over expectations for the European Central Bank to raise rates further, adding support to the franc.

"The central bank must be worried about the contagion of the French [bond] selloff into the likes of Italy and even Spain," ING's global head of markets Chris Turner said in a note.

"The French debt selloff, the rise in volatility and, most importantly, the softening of interest rates all conspired to send the Swiss franc a lot higher."

Investors assume that any ECB fix to the bond market selloff will likely at least involve much less or no further interest-rate hikes, or possibly even the use of the Transmission Protection Instrument to buy bonds, he said.

If the market prices ECB rates lower, the euro could drop further towards 0.9250 francs, he said.

Unlike the ECB and Fed, the Swiss National Bank has kept interest rates unchanged at 0% and showed little appetite for raising rates even as the Middle East conflict has sent oil prices surging. The reduction in U.S. rate-rise expectations therefore proved a welcome reprieve for the franc.

The market priced a 23% possibility of a 25 basis-point rate increase in October, down from over 70% earlier in the week, and three rises by the end of next year, LSEG data showed.

Markets will be eyeing the key U.S. nonfarm payrolls report at 1230 GMT for clues on whether a U.S. rate rise later this month remains possible.

"A resilient labor report could quickly restore expectations of an interest-rate hike at the next meeting, lift yields and help the dollar recover," DHF Capital chief executive and asset manager Bas Kooijman said in a note.

"A weak print would reinforce the case for a hold and, if sufficiently soft, could begin to challenge the broader tightening path into 2027."