British Pound tests 1.3200 as higher US yields and risk-off markets boost US Dollar

GBP/USD reverses Wednesday's gains and hits fresh three-month lows at 1.3193 on Thursday.
UK S&P Global Manufacturing PMI has been revised lower, amid weak output growth.
The US Dollar outperforms its peers as long-term US Treasury yields hit fresh 24-year highs.

Guillermo Alcala FXStreet

The British Pound (GBP) heads lower against the US Dollar (USD) on Wednesday, with the GBP/USD pair hitting three-month lows just below 1.3200 ahead of the US session opening. A dismal market mood, with Brent Oil prices returning above $100 coupled with surging US Treasury yields, is buoying the US Dollar, while soft UK manufacturing activity data has failed to support the Pound.

US Treasury yields have crawled higher on Thursday, with the yield of the benchmark 10-year note hitting 24-year highs above 5.30% as the stalemate in the Middle East conflict keeps boosting energy prices and pushing global inflation higher.

The yield for the 30-year note hit another multi-decade high, at 5.68&, while the 2-year yield, closely related to Federal Reserve (Fed) interest rates, remains steady around 4.90% despite cooling hopes of a rate hike in October.

Soft US inflation data fails to dent US Dollar's rally

Personal Consumption Expenditures (PCE) Price Index data from the US released on Wednesday revealed that inflationary pressures rose less than expected in August, while July's reading was revised lower. This prompted markets to dial down bets of another rate hike in October to a 37% chance, from nearly 70% one week ago, according to data by the CME’s FedWatch Tool.

In the UK, the final S&P Global Purchasing Managers’ Index, released earlier on Thursday, has been revised slightly lower, to a 51.9 reading in September, from preliminary estimations of 52.0. The report highlights the weakest output growth in the last six months, with orders and exports growing moderately but with demand slowing amid higher energy prices

Analysts at Rabobank point to a marked deterioration in speculative positioning on the Pound, noting that "GBP net shorts have also increased by more than 40% to their highest level since August." Rabobank adds that "GBP has weakened in line with the recent oil-driven USD rally," underscoring the negative speculative sentiment toward the Pound.

(This story was corrected at 011:15 GMT on October 1 to say in the fourth paragraph that the US PCE Price Index report released on Wednesday was August's, and not September's, as previously reported.)

Economic Indicator

S&P Global Manufacturing PMI

The Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by S&P Global, is a leading indicator gauging business activity in the UK’s manufacturing sector. The data is derived from surveys of senior executives at private-sector companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Pound Sterling (GBP). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for GBP.

AUD/USD seems vulnerable near 0.6800, 10-month low amid bullish USD

AUD/USD languishes near a 10-month low during the Asian session on Friday, awaiting a break below 0.6800 before the next leg up amid a bullish US Dollar. Firming Fed rate-hike expectations, along with fading hopes for US-Iran diplomacy, help the USD hold gains at its highest level since April 2025. Moreover, the RBA’s dovish tilt undermines the Aussie and backs the case for further losses.

USD/JPY bulls turn cautious near 160.00 amid intervention risks

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Gold remains on the back foot below $3,900

Gold now alternates gains with losses below the $3,900 mark per troy ounce on Friday. The precious metal struggles to regain traction amid the firmer US Dollar, mixed US Treasury yields and expectations of further tightening by the Fed at its December meeting.

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Gold hit its lowest level of 2026 near $3,850

Gold (XAU/USD) attempts to stabilize around $3,890 on Friday after falling to $3,852 on Thursday, its lowest level since October 2025. The precious metal has lost more than 4% this week, as investors increasingly anticipate further monetary tightening from the Federal Reserve (Fed). The latest decline reflects a sharp change in market expectations.