Dollar sinks to new low amid deficit fears

The dollar today sank to record lows against the euro and three-year lows against the yen amid concern that the US will have trouble financing its huge trade deficit.

The sharp fall in the greenback followed a US government report showing a steep drop in demand for US stocks and government bonds.

Declining demand for US financial assets makes it harder for the US to finance its current account deficit, the broadest measure of trade and investment. The deficit, currently running at around 5% of gross domestic product, is one of the biggest drags on the dollar.

According to US treasury department data yesterday, foreigners' net purchases of US treasury bonds and notes fell steeply to $5.6bn (£3.2bn), down from $25.2bn in August.
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