The pound fell 0.5% to $1.3086 on Wednesday as mounting UK budget concerns triggered a flight to Swiss franc safe havens, reversing gains from the broader dollar decline that lifted sterling 7% in 2025.
Sterling dropped 0.4% against the euro to €1.13, its lowest level since April 2023. UK 30-year gilt yields rose 4 basis points to 5.21%, matching August's peak as the highest since 1998.
"GBP is under pressure as fiscal uncertainty builds ahead of Chancellor Rachel Reeves' budget," said Simon Phillips, managing director at No1 Currency. Mizuho Bank analyst Jordan Rochester warned the pound could fall below $1.30 if budget measures disappoint.
The shift marks a reversal in European currency flows. Safe-haven demand that previously supported sterling now benefits the Swiss franc as investors seek stability outside UK assets. Two-year and 10-year gilt yields also climbed Wednesday.
An inflation-linked bond auction drew record demand of £69 billion in bids for £4.25 billion of debt, surpassing March's £67.5 billion. The UK ties 25% of its gilts to inflation, compared to 10% in the US and France, amplifying market sensitivity to fiscal policy.
"There's a real risk of fiscal instability," said Neil Wilson, analyst at Saxo Markets. The budget on November 26 is expected to unveil additional tax increases as Reeves addresses what she calls a "black hole in public finances."
The pound's decline occurs against a backdrop of dollar weakness. The US Dollar Index has tumbled 10.8% in early 2026 to its lowest level since 2022 as markets anticipate Federal Reserve leadership changes in June 2026.
Currency analysts forecast continued volatility. The shift from dollar weakness benefiting sterling to safe-haven flows favoring the Swiss franc reflects growing investor concern about UK fiscal policy execution.
Kathleen Brooks, research director at XTB, noted gilt yields now signal market wariness rather than confidence. Portfolio manager Mike Riddell at Fidelity Strategic Bond Fund called gilts "the top performer globally over recent months," though rising yields indicate falling bond prices.
The FTSE 100 closed at a record 9,911 despite currency pressure, up 0.1%. European markets advanced, with the Stoxx 600 reaching 583.4 points.