Pound-to-Dollar Forecast: UK Gilt Yields Hit 2008 Highs as GBP Retreats

Modified: Wednesday, 2 September 2026 11:31 BST - Written by James Fuller

STORY LINK Pound-to-Dollar Forecast: UK Gilt Yields Hit 2008 Highs as GBP Retreats

The Pound to Dollar exchange rate (GBP/USD) has retreated towards two-week lows around 1.3530 as a renewed global bond-market sell-off unsettled risk appetite and pushed UK borrowing costs to their highest levels since 2008.

Pound Sterling faces conflicting forces from the surge in gilt yields, with higher returns offering carry support while simultaneously reviving concerns over fiscal sustainability and the UK economic outlook.

GBP/USD Forecasts: Close to 2-Week Lows

The dollar lost ground on Monday, partly a function of month-end position adjustment, but it recovered ground on Tuesday and traded around 1.3530, close to 2-week lows and near the key 1.3500 level.

Scotiabank is still positive on the Pound outlook; “The GBP’s latest trend is also bullish, with a clear sequence of higher highs and higher lows since June. We see near-term support at 1.3500 and near-term resistance above 1.3600.”

A fresh sell-off in global bonds dominated the first day of September. The UK 10-year yield jumped to near 5.20% and the highest level since 2008 with US yields also spiking higher.

Equity markets lost ground which hampered the Pound to some extent, while there was a mixed impact from elevated bond yields amid major fundamental debates on both sides of the Atlantic.

Although there is the potential for support from carry trades, there will be fresh concerns surrounding the fiscal outlook and important uncertainty over central bank policy decisions.

At this stage, markets are pricing in just over a 60% chance of a September Fed rate hike, but there is still a high degree of uncertainty and the Fed is in a difficult position.

ING expects solid underlying US currency support; “we’d be very cautious about chasing a dollar correction further this week. In our view, markets would need a string of materially disappointing data releases over the coming days to meaningfully reassess September FOMC expectations after Warsh’s hawkish message last week. We do not think that is likely.”

MUFG also noted the importance of upcoming data and is more cautious over the dollar outlook; “if energy prices remain elevated and/or grind higher the tone of rhetoric from most central bankers is likely to be hawkish and this could well be curtailing the appetite to buy the US dollar at this stage.”

There are still underlying doubts surrounding US fundamentals.

According to MUFG; “It was only very recently too that “USD debasement” were the busswords and the impression of the US wanting a weaker US dollar will also curtail dollar buying enthusiasm.”

Domestically, UK shop prices increased 1.5% in the year to August from 0.9% previously and oil prices increased on Tuesday while UK gas prices hit fresh 3-year highs.

There will inevitably be at least a short-term inflation impact. Markets are pricing in a rate hike this year, but Commerzbank FX analyst Michael Pfister noted; “The Bank of England is uncertain how transitory the price shock will be."

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TAGS: Pound Dollar Forecasts