British Pound Outlook Darkens as Yields Surge

Modified: Wednesday, 3 September 2025 21:15 BST - Written by Tim Boyer

STORY LINK British Pound Outlook Darkens as Yields Surge

Pound Sterling's outlook deteriorated sharply on Tuesday as the UK currency slumped against both the Dollar and the Euro amid a global bond market rout and deepening fiscal fears.

The Pound to Dollar (GBP/USD) exchange rate crashed to a 3-week low below 1.3350, while the Pound to Euro (GBP/EUR) also tumbled to 1.1485.

Surging gilt yields, weak UK fiscal credibility, and falling equity markets combined to trigger Sterling’s steepest one-day drop in four months, leaving forecasts tilted toward further volatility.

GBP/USD Forecast: Sterling Slumps to 3-Week Low

The Pound to Dollar exchange rate briefly touched 1.3550 in Asian trading before heavy selling dragged it below 1.3350 after the New York open.

Scotiabank noted; “recent price action offers little in terms of support ahead of 1.33. We look to a near-term range bound between 1.3320 and 1.3450.”

The Dollar gained defensive support as risk appetite deteriorated, though doubts over US fundamentals linger. Commerzbank FX analyst Michael Pfister warned: "Recently, we have seen a worrying trend in the index: the employment component has collapsed while the prices paid component has risen significantly... If this trend continues, the USD is likely to weaken further."

GBP/EUR Forecast: Pound Drops Toward 1.1485

The Pound to Euro exchange rate slid to 3-week lows around 1.1485 as investors cut exposure to UK assets.

Concerns over long-term debt dynamics hurt Sterling, with the 10-year gilt yield rising to a 4-month high above 4.82% and the 30-year yield surging to a 27-year high above 5.70%.

Schroders strategist Marcus Jennings said; “Given the starting point of high UK government debt, this makes the UK and gilts particularly vulnerable.”

Rabobank and ING analysts expect UK fiscal concerns to remain a persistent headwind for GBP/EUR through the autumn budget season.

UK Fiscal Outlook in Focus

The UK government faces intense scrutiny over fiscal credibility, with Chancellor Reeves under pressure to stick to borrowing rules while facing growing calls for higher taxation.

Capital Economics’ Ruth Gregory said; “If the Chancellor, Rachel Reeves, is going to continue to meet her fiscal rule with a buffer of £9.9bn, she will probably have to raise £18-28bn in the Autumn Budget, mostly via higher taxes.”

Scotiabank added that markets are already questioning the government’s ability to stick to its self-imposed spending rules.

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TAGS: Pound Dollar Forecasts