Sterling briefly fell to an 11-month low against the euro on Tuesday after a sharp fall in UK house prices, but it gained some ground versus the struggling dollar. The drop in the housing market reinforced broad expectations that interest rates have peaked and overshadowed British inflation data which showed a small rise in annual price growth to 1.2 percent in October from September's 1.1 percent.
"The housing data means that interest rates have peaked and this means that there will be no support for sterling," said Marios Maratheftis, foreign exchange strategist at Standard Chartered in London. "But it won't hold it back against the dollar. Sterling's relatively good performance against the dollar is due to the dollar's broader weakness across the board."
Sterling fell to 70.16 pence per euro, its lowest level since early January, before recovering to trade around 70.00 pence at 1525 GMT.
Against the dollar, the pound rose as high as $1.8564, before edging lower to $1.8533, still up a third of a percent on the day.
Meanwhile, the dollar seesawed against the euro, following a US government report that showed an increase in US capital inflows in September. The dollar initially got some support from the data but went back into the red in the European afternoon.
Data released on Tuesday showed that a net $63.4 billion flowed into US asset markets in September, compared with an upwardly-revised $59.9 billion the previous month. This more than covered the trade deficit of $51.6 billion in September.
The Bank of England has raised interest rates five times in the past year to 4.75 percent and signs are now that tighter monetary policy is slowing down house price inflation.
The Royal Institution of Chartered Surveyors said early on Tuesday that 41 percent more of their members were reporting house price falls than rises, pushing down their seasonally adjusted house price balance to -41 in October from -30 in September.
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