Sterling dropped to a 3-1/2 week low and was 1.24% lower at $1.3375, while the U.S. currency firmed 0.84% to 148.40 yen, hitting its highest against the yen since August 1

Yen and sterling slumped on Tuesday on growing investor anxiety about government finances, allowing the dollar to claw back some ground, while traders looked toward Friday’s U.S. jobs report for signals on the greenback’s next turn.

Renewed pressure on bond markets, with Britain’s 30-year borrowing costs rising to their highest levels since 1998, spilled over into currency markets, while gold hit new record highs.

Negative developments outside of the U.S. are probably what’s driving the market today, in terms of dollar strength, said Vassili Serebriakov, FX strategist at UBS in New York.

U.S. payrolls data to be released on Friday is likely to determine the path of the dollar in coming weeks, he added.

UK’s sterling dropped to a 3-1/2 week low and was 1.24% lower in afternoon trade at $1.3375. The U.S. currency firmed 0.84% to 148.40 yen, hitting its highest against the yen since August 1.

The euro dropped 0.61% to $1.1637.

While sterling was weighed down by lingering worries over Britain’s fiscal position ahead of a budget later this year, dovish-leaning remarks from a Bank of Japan official and the resignation of a key ruling party official pulled down the yen.

Sterling’s underperformance is reflecting the growing concerns over the fiscal situation as we move closer to the budget and it becomes a bigger focus for market participants, said Lee Hardman, senior currency analyst at MUFG.

Finance minister Rachel Reeves is expected to raise taxes in her autumn budget in order to remain on course for her fiscal targets, potentially adding to the challenge of boosting growth.

For the yen, heightened political uncertainty was likely to remain a drag, while the lack of a hawkish policy signal from Deputy Governor Ryozo Himino on Tuesday would encourage speculators to continue rebuilding short yen positions, Hardman said.