The pound continued its rise against the dollar today, moving above the $2.03 level as concerns over the US sub-prime mortgage sector continued to hurt the greenback.

By 0826 GMT, the pound had hit $2.0303, its highest since 1981. The dollar has been under broad pressure, also hitting a record low against the euro in the aftermath of a report from credit rating agency Standard & Poor’s yesterday that it might downgrade $12.1 billion in sub-prime-related debt and that US house prices would plunge 8 per cent this year, hitting economic growth.

This was followed by Moody's downgrading some $5 billion of similar debt.

Against a basket of currencies, the dollar was at its lowest level since Federal records began 34 years ago in 1973. The dollar was at an all-time low against the euro of $1.3745.

Mounting expectations of a rise in UK interest rates to 6 per cent meant sterling also rose against the euro to $1.47 and the euro was 72.71 cents

Sterling broke through the symbolic two US dollar barrier in April, climbing past the 2.012 dollar level seen just after Black Wednesday in September 1992, when the pound dropped out of the European Exchange Rate Mechanism.

In London the FTSE-100 fell following the 150 point dive in the Dow Jones overnight and a 148 point fall in the Nikkei in Japan.

Ben Bernanke, the chairman of the Federal Reserve, did nothing to calm investor nervousness about interest rates by declining to comment on his view of the American economy in a speech last night.

Analysts today said that sterling could have further to rise against the dollar. Howard Archer of Global Insight said: "Both sterling and the euro seem likely to remain well supported against the dollar in the near-term at least, given the strong likelihood that interest rate differentials will move further in their favour over the coming months."

He added: "The European Central Bank seems set to raise Eurozone interest rates by a further 25 basis points to 4.25 per cent in September, while the US Federal Reserve is unlikely to act for some considerable time to come."

The Fed may even be forced to cut interest rates to stave off an economic downturn over the credit crisis.

David Weiss, S&P’s global chief economist, said that the price declines would easily outstrip the record set in the last US housing market crash in 1991, when property values fell by 6.5 per cent.

Mr Weiss predicted that the housing market would bottom out early next year but that losses relating to home-loan investments, such as mortgage-backed bonds, would not peak until the end of 2008 or the start of 2009.

The crisis stems from a dramatic rise in house prices in recent years, to represent 3.4 times average household income in 2006, which has left borrowers struggling to meet their repayments after a series of rate rises.

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