Pound Sterling Crashes Against Euro, Dollar After UK Debt Fears Explode

Modified: Wednesday, 3 September 2025 07:55 BST - Written by Tim Boyer

STORY LINK Pound Sterling Crashes Against Euro, Dollar After UK Debt Fears Explode

The Pound to Dollar (GBP/USD) and Pound to Euro (GBP/EUR) exchange rate outlook has taken a fresh hit, with Sterling tumbling to multi-week lows as UK debt fears explode into global markets.

Pound Sterling is trading at 1.1499 against the Euro (-0.03%) and at 1.3384 against the US Dollar (+0.02%) on Tuesday morning, showing signs of stabilisation after the bruising sell-off.

Investors are dumping UK assets amid surging gilt yields, renewed tax-hike speculation, and collapsing confidence in the government’s fiscal strategy, leaving the pound vulnerable against both the euro and the dollar.

The GBP/USD rate slumped to 3-week lows below 1.3350 before rebounding modestly above 1.34, while GBP/EUR slid to fresh 3-week lows near 1.1480.

Mounting fears over Britain’s debt burden, speculation over looming tax hikes, and collapsing confidence in the government’s fiscal strategy have left Sterling reeling against both the Euro and the Dollar. Bond markets have turned hostile, with soaring gilt yields fuelling comparisons to an emerging-market style crisis and deepening pressure on the UK government.

Amanda Sundström, FX Strategist at Skandinaviska Enskilda Banken AB (SEB), underlined the severity of the situation:

“The pound took a beating yesterday, with renewed focus on miserable British public finances. However, fiscal woes are not limited to the UK, and the combination of rising interest rates and weaker currencies signals that the market is concerned about Europe's political and fiscal situation.”

She added:

“French and British Treasury yields rose sharply, while the euro and, in particular, the pound tumbled versus the dollar. The concern is hardly a newfound one, but has resurfaced again against the backdrop of the political turbulence in France, the UK 30-year yield reaching levels not seen since the 1990s and on top of it, record-high issuance in Europe.”

SEB warns the UK faces a daunting mix of risks:

“The UK faces a difficult equation, with persistent inflation, high interest rates, high public debt, weak growth and extensive investment needs – and the risk of a worsening situation should not be neglected.”

GBP Forecasts: Fresh 3-Week Lows vs Euro and Dollar

Sterling posted heavy losses into the US open amid indiscriminate selling before a selective recovery later in New York as gilts rallied and the dollar faded.

Concerns over long-term debt dynamics hurt the Pound amid weaker risk conditions as bond vigilantes stalked global markets.

Gold continued to post record highs, illustrating underlying global stresses.

UK bonds remain a key talking point, especially with the Bank of England facing an extremely difficult task in setting policy.

Allianz adviser Mohamed El-Erian commented;

“Yields on longer-dated government bonds in advanced countries continue to rise, with the UK notably experiencing this alongside a weaker currency—similar to what is more usual for developing countries.”

UK bond markets did stabilise later in the session with the 10-year yield edging below 4.80% from 4-month highs above 4.83%. The 30-year yield also declined to 5.69% from 27-year highs above 5.73%.

The Euro drew support as Euro-Zone inflation edged higher to 2.1% from 2.0%, dampening expectations of a September ECB cut. ING noted:

“With interest rates set at neutral levels, you could argue this is a logical time for the ECB to keep rates on hold. But still, with slow growth and downside risks, the doves could still push for one more cut before holding steady.”

In the US, the ISM manufacturing index edged up to 48.7 in August from 48.0 but still flagged contraction, with weaker employment trends fuelling stagflation fears.

Markets remain laser-focused on the Federal Reserve’s next move and whether political pressure from President Trump could compromise central bank independence.

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TAGS: Pound Dollar Forecasts Pound Euro Forecasts