GBP/CAD slides to four-week low as UK gilt rout rattles Sterling, Canada PMI shows improvement

• GBP/CAD falls to a four-week low below 1.8500 amid UK fiscal concerns and Gilt rout.
• UK gilt yields spike to multi-decade highs, with 30-year yields reaching 5.72%, the highest since 1998.
• Canada's factory sector contraction eases, with PMI climbing to 48.3 in August from 46.1 in July.

The Pound Sterling (GBP) faces broad-based selling pressure on Tuesday, with GBP/CAD tumbling sharply as concerns over the United Kingdom's (UK) fiscal trajectory and surging Gilt yields dominate market sentiment.

At the time of writing, GBP/CAD is trading around 1.8460, near its lowest level since August 7, after slipping decisively below the 1.8500 psychological handle earlier in the European session. The move reflects broad-based Sterling weakness, with GBP/USD also tumbling to nearly four-week lows amid a steep sell-off in UK government bonds.

The rout in gilts has driven 30-year yields to roughly 5.72%, their highest level since 1998, underscoring investor unease about rising borrowing costs and the Labour government's fiscal credibility ahead of the autumn budget. The surge in long-term borrowing costs adds pressure to the UK's already fragile economic outlook, raising concerns about debt sustainability and fiscal space.

Meanwhile, the UK's record £14 billion issuance of 10-year Gilts earlier in the day drew strong demand, with over £140 billion in bids. Yet the bonds cleared at a yield of 4.8786%, the highest since 2008, highlighting the elevated "risk premium" now required by investors to hold Sterling-denominated debt. Analysts warn that while demand for UK paper remains deep, the cost of financing is rising to levels that could tighten fiscal flexibility in the months ahead.

On the Canadian side, the latest S&P Global Manufacturing Purchasing Managers Index (PMI) brought a dose of resilience to the Loonie. The index rose to 48.3 in August, up from 46.1 in July, marking the strongest print in four months. While still below the neutral 50 threshold, the improvement highlights that the downturn in factory activity is easing.

It was, however, the seventh consecutive month of decline in Canada's manufacturing sector, pressured by the series of tariffs imposed by the United States (US) on Canadian goods alongside domestic retaliatory levies, which have weighed on demand and trade flows.

Commenting on the data, Paul Smith, Economics Director at S&P Global Market Intelligence, noted that the sector "continued to decline, but to a noticeably lesser degree than earlier in the year," adding that while conditions remain challenging, the August figures suggest a tentative stabilization in activity.