Sterling fell most against the Australian dollar and the South African rand. Chancellor of the Exchequer George Osborne presents updated economic and fiscal forecasts to Parliament tomorrow amid speculation government growth estimates will be cut and budget shortfalls will be greater than predicted. Two- year gilt yields fell to a record, while 10-year yields rose on concern the government may have to issue more bonds this year than previously envisaged.
“We have a negative view about the pound,” said Geoffrey Yu, a currency strategist at UBS AG in London. “With the pre- budget statement later in the week, there is going to be more focus on U.K. growth. Credit and housing numbers are probably going to soften. People are going to question growth, and rightly so.”
The pound lost 1.4 percent to 1.5678 Australian dollars and 13.0079 rand at 12:39 p.m. London time. It was 0.1 percent weaker at 85.84 pence per euro and climbed 0.8 percent to $1.5555.
Two-year gilt yields fell four basis points, or 0.04 percentage point, to a record 0.416 percent. Ten-year yields climbed three basis points to 2.32 percent.
Longer-dated gilts declined as stocks advanced, damping demand for the relative safety of government bonds. The FTSE 100 Index (UKX) added as much as 2.5 percent, the biggest gain since Oct. 27.
The average cost of a home fell 0.2 percent from October and was down 2.3 percent from a year earlier, Hometrack Ltd. said today in an e-mailed report on its monthly survey of real- estate agents. Prices based on the property researcher’s gauge have fallen every month but one since July 2010.
The BCC said today gross domestic product will increase 0.9 this year, 0.8 percent in 2012 and 1.8 percent in 2013, compared with previous forecasts of 1.1 percent, 2.1 percent and 2.5 percent respectively. It added that the risk of another recession “cannot be shrugged off” and predicted the Bank of England will add to its bond-purchase plan early next year.
The central bank said last week that the threat of the euro-area debt crisis on the U.K. economy has increased. Minutes of the central bank’s Nov. 9-10 meeting released on Nov. 23 showed some policy makers said an increase in stimulus may be needed to support the economy. The minutes also revealed the nine-member Monetary Policy Committee voted unanimously to keep its key interest rate at a record low of 0.5 percent.
Gilts Versus Bunds
Gilts have returned 15 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German debt gained 6.6 percent and U.S. Treasuries rose 9.4 percent, the indexes show. Gilt yields have fallen 26 basis points in the past month, Bloomberg data shows.
U.K. 10-year gilts declined as investors unwound long positions ahead of the government’s report tomorrow, said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. A long position is a bet that an asset will increase in price.
“Investors are lightening up their gilt positions ahead of tomorrow, and for a good reason,” said Kumar. “Gilts have outperformed bunds recently and are seen as a haven because of the euro-region debt crisis. There’s a risk that growth and funding forecasts tomorrow may raise questions about that safe- haven status.”
Prime Minister David Cameron said last week that bringing Britain’s debt under control is proving “harder than anyone envisaged.”
Ten-year gilt yields were about two basis points more than equivalent-maturity German debt today after last week yielding less than bunds for the first time since March 2009.