LONDON, Oct 1 - Cable is back testing the 1.32 handle as the fixed-income sell-off gathers momentum. With 30-year gilt yields probing above 6%, the rates backdrop is increasingly difficult for sterling, while the dollar remains the clear beneficiary as flight to safety takes hold.

The sharp widening in the Bund-OAT spread has added to the weakness in the euro, the result of which has also weighed on GBP/USD. This is largely a euro-centric move, given that the EUR is under performing across the board, including through EUR/GBP, which has so far helped cushion cable and kept it from the 2026 low at 1.3140.

Elsewhere, the potential for a US diesel export ban continues to hang over markets after reports that the US has told France and Germany to release diesel stocks or risk an export ban. Although, any relief for US prices would likely be short-lived and have only a limited impact on the broader inflation story, the implications for Europe and the UK are clearly negative. That in turn also presents a headwind for EUR and GBP, making it difficult to lean against the dollar's strength.

Even though from a risk-reward perspective, chasing USD higher looks increasingly unappealing. The current combination of rising gilt yields, widening European spreads and a flight to safe-havens means that the dollar can still grind higher, leaving cable under pressure in the near term. The next downside objective remains the 2026 low at 1.3140.
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Justin McQueen is a Reuters market analyst. (The views expressed are his own) ((Email: ))