The pound strengthened versus the euro and dollar last Thursday as robust UK retail data eased expectations about the extent of monetary easing likely from the Bank of England. A 0.8 percent jump in January retail sales altered the trend of a series of poor economic data in the last few months and saw investors revise forecasts for a series of rate cuts in the first half of the year. Despite this temporary move up, Sterling fell today after a fall in British annual house price inflation to a 22-month low which backed the case for more growth-boosting interest rate cuts.

Housing market research company Hometrack said house prices fell by 0.2 percent this month, their fifth monthly fall, which has pushed annual inflation down to 1.4 percent from January's 2.3 percent. "It's the lowest annual growth since summer 2006 which is a continuation of the fairly bleak news on the UK housing market," said Adam Cole, global head of FX currency strategy at RBC Capital Markets.

The state of the housing market will remain a key theme for the rest of the week, with January mortgage approvals and the February house price survey from the Nationwide Business Society being seen as a forward looking indicator Housing & Credit issues (as pointed out in the B of E’s Minutes last week) are therefore expected to weigh heavily on the pound this week and for the foreseeable future as interest rate cuts are required to bolster are slightly flailing economy.
Perhaps, Sterling is only half way through its downward cycle and it is therefore time to look at damage limitation to prevent further slippage.