The US dollar suffered a severe sell-off on Friday, taking it to its weakest level against a trade-weighted basket of currencies since October 1997, as fears about the US current account deficit crossed world markets.

Worries about US inflation, which have intensified since this week’s meeting of the US Federal Reserve’s rate-setting open market committee on Wednesday, sparked further sharp losses for US stock markets. The Nasdaq Composite fell a further 1 per cent in morning trading after its 2 per cent fall on Thursday.