– Written by
Frank Davies
STORY LINK Pound to Dollar Rate Hits Three-Month Low on Bond Sell-Off
The Dollar continued to dominate global currency markets at the end of the week, with the Pound to Dollar (GBP/USD) exchange rate falling to fresh 12-week lows near 1.3200 before staging a limited recovery.
GBP/USD traded back towards 1.3250-1.3260 on Friday, but remained under heavy pressure after two consecutive weeks of sharp losses.
According to Scotiabank; “Heavy spot losses Wednesday drove the GBP below the late July low at 1.3277, indicating scope for GBP weakness to extend towards the mid-1.31s and retest the June low and the bottom of the broader YTD range.”
The 2026 low around 1.3140 therefore remains an important downside reference if Sterling comes under renewed pressure.
Bond Sell-Off Keeps Dollar Supported
The surge in global bond yields has remained a key source of Dollar support.
The US 10-year Treasury yield climbed above 5.20% on Friday, reaching its highest level since 2007, while the 30-year yield hit its highest level since 2004.
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The latest increase followed another round of stronger-than-expected US economic data, reinforcing expectations that the Federal Reserve will continue tightening monetary policy.
Deutsche Bank market strategist Jim Reid commented; “The main story is still the huge global bond selloff, with yesterday seeing the biggest jump in the 10yr Treasury yield (+15.2bps) since the market turmoil around Liberation Day in April 2025.”
ING commented on the Dollar; “Very strong US PMIs, higher oil prices and soft risk sentiment have all contributed to the bullish narrative, although the move is starting to look stretched relative to fundamentals.”
It added; “We are cautious in calling for a top in the dollar just yet because any upside surprise in upcoming US data releases can easily prompt markets to fully price in an October Fed hike and prop up short-term rates even more. But if this risk doesn’t materialise, we expect a correction in DXY in the coming weeks.”
The Dollar index remained close to recent multi-month highs, although it eased slightly on Friday as oil prices retreated.
Markets continue to price a strong possibility of another Federal Reserve rate hike at the October meeting.
UK Bond Stress Adds to Pound Vulnerability
The UK bond market has also remained under heavy pressure.
The 10-year gilt yield has traded around 5.40%, close to fresh 19-year highs, as investors assess the combination of high inflation, fiscal pressures and expectations of further Bank of England tightening.
High UK yields can provide Sterling with support when global risk appetite remains firm.
However, there is also a growing risk that elevated borrowing costs are interpreted as a sign of fiscal stress rather than economic strength.
According to MUFG; “For FX the moves in fixed income will remain key. The losses being suffered by investors, in particular amongst fast money accounts could start to have repercussions for the broader market as investors look to offset these losses by closing out other profitable positions.”
It added; “Periods of low FX volatility always end with a bang and current market conditions are certainly consistent with an increased risk of that scenario materialising. High yielders across EM would suffer most while the yen and Swiss franc would outperform.”
The weaker domestic backdrop has provided Sterling with little protection.
The latest CBI retail sales balance deteriorated to -55 in September from -48 in August, significantly weaker than consensus forecasts around -42.
CBI Lead Economist Martin Sartorius commented; “Retailers reported a steep fall in annual sales volumes in September, with some firms attributing the deterioration to poor consumer sentiment.”
The CBI also reported that retailers cut orders placed with suppliers at the fastest pace since the survey began in 1983, reinforcing concerns over underlying consumer demand.
For GBP/USD, the 1.3200 area now represents the immediate support zone.
A sustained break below this level would increase the risk of a move towards 1.3140, the June low and 2026 trough.
On the upside, Sterling would need to regain 1.3300 initially and then 1.3350 to ease the immediate downward pressure.
The Dollar remains supported by high US yields and Fed tightening expectations, although ING’s warning that the move is becoming stretched suggests that weaker US data could still trigger a sharp correction.
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TAGS: Pound Dollar Forecasts
