The US dollar continued to slide during trading in London on Tuesday morning, following fears over the state of the US housing market.

The dollar fell to its lowest point since May 1981, reaching $2.0654 against the pound on Tuesday morning, while also falling to 120.62 yen and $1.3819 against the euro, reports Bloomberg.

Commenting on the dollar's recent decline, Shogo Nagaya, a forex manager at Nomura Securities, told the Reuters news agency: "The dollar selling is driven by sub-prime mortgage concerns while the yen's rise is due to some unwinding of carry trades."

Investors continue to favour "high-yielding" currencies, particularly those where rising interest rates seem a likely prospect, he added.

According to the latest UBS/Gallup index of investor confidence, optimism among US investors fell by two points in July, with many concerned about the overall condition of the country's economy.

Maury Harris, chief US economist at UBS Investment Bank, cited the poor performance of the housing market as a key factor.