President Sarkozy of France inflamed transatlantic tensions over the slumping dollar yesterday as the latest steep falls in the US currency fuelled fears over its destabilising impact on the global economy.

As the dollar sank to new record lows, propelling the pound to levels above $2.10 for the first time in 26 years, Mr Sarkozy used an address to a joint session of the US Congress to warn Washington against a policy of tacit acceptance as its currency sank.

Raising the spectre of economic war, the French President said: “Those who admire the nation that has built the world’s greater economy . . . expect her to be the first to promote fair exchange rates. The dollar cannot remain solely the problem of others. If we are not careful, monetary disarray could morph into economic war. We could all be victims.”

The blunt warning to Washington came as the dollar’s sharp losses drove the euro to a fresh record high of $1.4730, stoking fears among eurozone businesses and governments that it would undermine growth prospects.

The dollar’s losses were fuelled as one top Chinese official suggested a larger role for the euro in China’s vast foreign reserves and a Chinese central banker claimed the dollar was losing its status as a global reserve currency.

Anxiety over the fallout from the dollar’s plunge were further heightened as it helped to thrust oil prices to another record, with US light crude climbing to $98.62 a barrel before later falling back sharply on profit-taking.

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