GBP/USD Forecast: Pound Sterling Plunges as UK Bond Yields Hit 27 Year High

Modified: Tuesday, 2 September 2025 17:30 BST - Written by Frank Davies

STORY LINK GBP/USD Forecast: Pound Sterling Plunges as UK Bond Yields Hit 27 Year High

The Pound-US Dollar exchange rate (GBP/USD) slumped on Tuesday, weighed down by surging UK government bond yields, which rose to their highest level in 27 years.

At the time of writing, GBP/USD was trading at approximately $1.3407, down roughly 1% from the start of Tuesday’s session.

The Pound (GBP) fell sharply on Tuesday, sliding against the majority of its peers and shedding more than 1% against the US Dollar (USD), as mounting headwinds undermined the currency.

A sharp climb in bond yields and rising borrowing costs intensified pressure on Sterling, with investors growing increasingly wary ahead of the Autumn Budget.

Concerns over the UK’s fiscal outlook were further compounded by uncertainty surrounding a government reshuffle, which clouded confidence in the country’s economic direction.

Adding to the downward momentum, a downbeat global market mood sapped demand for increasingly risk-sensitive assets, leaving the Pound exposed during Tuesday’s European session.

The US Dollar (USD) advanced against the majority of its peers on Tuesday, buoyed largely by shifting market sentiment.

As risk appetite soured, demand for the safe-haven currency increased, allowing the ‘Greenback’ to push higher through the first half of the session.

Later in the day, the release of the US’s latest ISM manufacturing PMI for August offered additional support.

While the index continued to signal contraction in the sector, the reading beat forecasts, reinforcing confidence in the resilience of the US economy and keeping USD exchange rates on the front foot.

GBP/USD Forecasts: US Labour Data to Drive Movement

Looking ahead to Wednesday’s European session, the GBP/USD exchange rate is set to take its lead from a pair of key data releases on either side of the Atlantic.

For the US Dollar, focus will fall on the publication of July’s JOLTs job openings.

The index is expected to record a marginal decline, which could revive concerns over a cooling labour market and place fresh pressure on the ‘Greenback’.

Should the data undershoot forecasts by a wider margin, USD exchange rates may weaken further.

Turning to the Pound, the UK’s services PMI for August will be in the spotlight.

As the UK’s dominant sector, any signs of strength carry significant weight.

The index is forecast to edge higher, climbing from 51.8 to 53.6, and if confirmed, could provide Sterling with some much-needed support.

Even so, lingering fiscal worries and uncertainty over the Autumn Budget may continue to cloud sentiment towards the Pound, potentially limiting the currency’s upside.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts