The weak housing data will increase pressure for a cut in interest rates at Thursdays Bank of England meeting.
There has been some support from an improvement in risk appetite and gains in the UK stock market, but this is being over-shadowed by a continuing lack of confidence in the economy.
There will be further speculation over an interest rate cut at this weeks Bank of England meeting. Expectations of a 0.25% reduction in rates should have a measured Sterling impact, but speculation of a 0.50% rate cut would be more damaging. The shadow MPC committee of academic economists voted by a 6-3 majority for 0.25% rate cut at their weekend meeting, reinforcing expectations of an official cut at this weeks meeting.
Overall sentiment remains weak and Sterling weakened to 0.7930 against the Euro in early Europe on Tuesday with further selling pressure above 1.99 against the dollar. The latest HBOS house-price survey reported a 2.5% decline in prices for March which cut annual growth to 1.1% and will reinforce fears over the UK economy with Sterling weakening to 0.7970 against the Euro.