Sterling slipped to a one-month low against a basket of currencies on Tuesday, as investors remained downbeat about the prospects for the UK economy and the health of Britain's dominant banking sector.
Markets put a negative spin on Britain's decision to bring troubled mortgage lender Northern Rock under public ownership, with some analysts saying this would leave the government less room for manoeuvre in fighting an economic downturn.
Writedowns at Barclays Capital and Credit Suisse, announced on Tuesday, further dampened sentiment on the banking sector. "It's just been a continuation of disappointment about the Northern Rock stuff on the weekend, the market took that quite negatively for cable," said Geoff Kendrick, currency strategist at Westpac, adding that the sterling sell-off was starting to look over done and could reverse in coming days.
"Most of the bad news is already priced in for the UK, whereas in Europe there is still a lot of bad news to be found under rocks over the next few months," he said.
The euro rose as high as 75.70 pence - its strongest in a month, and closing in on mid-January's record highs of 76.13 pence. Sterling also hit a one-month low against a trade-weighted currency basket, at 95.10. Against the dollar it was steady at $1.9519 by 1456 GMT.
Further input on the likely path of future monetary policy may come from MPC member Kate Barker's speech at 1935 GMT and BoE minutes on Wednesday - with the latter expected to show unanimous backing for this month's rate cut. One reason for pressing on with rate cuts would be to cushion the housing market from any sharp slowdown.
Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, told a Reuters summit on Tuesday that RICS was sticking to its forecast for flat house prices this year, though risks point to the downside of that. At the same event, Countrywide, Britain's biggest estate agent, forecast that home sales would remain about a quarter of a million below trend in 2008.