The dollar rose against the pound and the euro for the tenth consecutive day after investors reassessed their outlook for the global economy.

Sterling was languishing near its lowest level for almost two years at $1.8668 after touching a 22-month low of $1.8619 this week.

Since hitting a record low against the euro a month ago, the dollar has risen more than 7 per cent as differences in growth expectations between the major economies widen.

Yesterday, the Bank of England offered a bleak assessment of the British growth outlook in its quarterly Inflation Report.

Mervyn King, the Bank's Governor, refused to rule out the possibility of a recession, while forecasts for a sharp fall in inflation next year opened the door for possible rate cuts.

Market players have been caught off guard by the sudden downturn in global economic expectations, leading to heavy selling of once popular bets favouring the euro, Australian dollar and commodities on the view world growth would hold up.

Akio Shimizu, forex chief at Mitsubishi UFJ Trust, said: “Many players are keen to sell the euro and the pound as the outlook for the economy and monetary policy in Europe is very uncertain."

Figures out later this morning are expected to show that the Eurozone economy shrank in the second quarter, taking it into recession territory.

Investors are fleeing to to the dollar as it is unlikely the Federal Reserve will cut rates further after a sharp spate of cuts earlier this year.

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