Sterling fell 1.5 percent against the euro on Monday as soft UK house price data reinforced jitters about the health of the economy and a Bank of England plan to ease credit market strain failed to impress.
Annual house price inflation in England and Wales slowed to its weakest level since mid-2005 this month as a survey from property website Rightmove showed house price inflation in England suffered its first monthly fall in six years.
Losses were extended as the BoE detailed a widely trailed plan to lend banks up to 50 billion pounds to help them operate during the credit squeeze.
Some analysts were sceptical about how well the plan would work in easing credit market strains that have persisted since last August. "I'm not sure how effective it will be," said David Pais, currency strategist at Citi. "The UK mortgage market rolls over 350-360 billion pounds worth of debt per year so the 50 billion will help but it's not going to solve the problem."
By 1540 GMT, the euro was up roughly 1.5 percent at 80.30 pence, on track for its biggest daily percentage gain in four years. The pound was down 0.7 percent at $1.9840 against a generally weaker dollar.
News of the plan had helped lift the pound from record lows hit against the euro last week and some strategists were still optimistic that sentiment could turn positive. "The Chancellor made it clear that he is set to free up the mortgage market and this should be positive for the pound," said Paul Robson, currency strategist at RBS Global Banking. The Royal Bank of Scotland, Britain's second largest bank, is expected to announce a share issue this week in a move which analysts believe could raise over $20 billion in the sector and others are expected to follow.
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