Pound Sterling Falls as UK Gilt Yields Hit 1998 High

The Pound Sterling weakened against the euro and the US dollar this week after UK 30-year gilt yields climbed to 5.697% on September 1, 2026, the highest level since May 1998. Ten-year gilt yields also rose, moving above 5.20% and marking their highest point since 2008.

The move matters because rising government borrowing costs usually attract foreign buyers into a currency. Instead, sterling has moved in the opposite direction, a signal that investors are pricing fiscal risk rather than yield opportunity.

GBP/EUR is currently trading near €1.1629 during the week, within range of the closely watched 1.1600 support level. EUR/GBP rose toward 0.8685 in the same session. GBP/USD traded just under 1.3500, roughly 1.5% below its late-August peak near 1.3700, after touching a session low close to 1.3475.

A key development compounding the pressure was investors are focused on the government's first Budget, due October 28, 2026, from a finance minister who has pledged to keep the fiscal rules inherited from his predecessor.

The Bank of England's next policy decision falls on September 17, 2026. That meeting carries added weight because the Monetary Policy Committee will also publish its annual decision on the pace of gilt sales alongside the rate decision, combining two variables the bond market is watching into a single announcement.

Three of nine Monetary Policy Committee members voted for a rate move at the July meeting, and most forecasters currently expect the Bank Rate to hold steady at 3.75% through year end. That leaves the fiscal question, rather than the interest rate path, as the dominant driver of the current gilt selloff.

On the eurozone side, European Central Bank Executive Board member Isabel Schnabel said she sees no case for further rate cuts, a comment that has added some support to the euro. The ECB's deposit rate stands at 2.25%, against the Bank of England's 3.75%, a gap of 150 basis points that continues to offer sterling a yield advantage on paper even as the currency struggles in practice, a dynamic recently on display in Japan, where a widening rate gap kept pressuring the yen despite coordinated intervention.

Elsewhere in the currency market, oil prices have stayed above $90.00 a barrel following renewed US strikes on Iranian targets and Iranian retaliation across the Gulf, keeping inflation expectations elevated on both sides of the Atlantic.

Later in the week, US economic data including the ISM Services PMI and the nonfarm payrolls report are expected to influence GBP/USD more directly than any scheduled UK release, with no major British data due before the Bank of England Governor's Friday morning remarks.