The dollar’s slide against most of the world’s currencies gained pace today as dealers worried over the outlook for the US economy.
Sterling and the euro are leading the charge against the embattled dollar, as interest rates are still expected to head higher in both Europe and the UK.
After a string of rate increases in the US in the past two years, the Federal Reserve has recently indicated it may pause or even cut borrowing costs. The Bank of England and the European Central Bank, on the other hand, are still widely expected to raise interest rates.
Many analysts reckon that global currencies are set for a major realignment as Europe takes over as the engine of world growth and the US starts to trip, prompting investors to sell dollar-denominated assets.
Ian Stannard, a currency analyst at BNP Paribas, said: “Dollar weakness has been building over the last few days.
“There is a growing recognition among policymakers that things are starting to slowdown in the US.” Mr Stannard expects sterling to breach the $2 mark.
Sterling soared almost a cent against the dollar to $1.9864, the euro strengthened to $1.3543 and the Japanese yen was also higher, at 118.26.
With many believing the dollar has to weaken further to ease its trade and current account deficits, free-floating currencies such as sterling, the euro, the Australian dollar and the Canadian dollar are taking the brunt of the currency’s slide.
Asia’s major currencies, including the Japanese yen and the Chinese yuan, are either managed or fixed against the dollar.