Fresh US restrictions on imports rattled financial markets today sending the dollar to its lowest level ever against the euro and shares tumbled while gold jumped to its highest in seven years.
Market confidence in US assets took another hit from news that overseas investors steeply pared their buying of US Treasury bonds and sold US stocks in September.
The spectre of protectionism has led many traders to think the US administration is so desperate to protect its domestic industries ahead of next year's presidential elections that it may pursue a weaker dollar in the future, which would make global investors shy away from US assets.
The US has announced new quotas on Chinese clothing imports while insisting it remained committed to free trade. The quotas have been imposed to help US firmsadjust to rising imports.
The euro rose as high as $1.1977 although some dealers said on some other trading systems it clocked a high of $1.1978 before easing a tad to $1.1950.
Just as growth in the world's largest economy has been seen as driving global expansion, investors have looked to Wall Street, the biggest share market, to help drag other major bourses higher.
The Dow Jones Industrial Average has outperformed all of the top stock exchanges and on November 7th hit 9,903.57, a jump of nearly 34 per cent or 1,477 points since touching a 2003 low of 7,416.64 on March 12th - 8 days before the shooting started in the Iraq war.
Some analysts fear that a weakening dollar combined with fears of further global terror attacks could dampen investor appetite for US assets and zap confidence in financial markets in general.
The dollar reacts closely to shifts in net inflow and outflow data because of the US need to finance its wide current deficit. The deficit is currently running around 5 percent of gross domestic product, making it one of the biggest weights on the greenback.
The weakening dollar also fired up gold, briefly sending it through $400 an ounce for the first time since March 1996. Increasing attacks on the US-led forces in Iraq and fears of al Qaeda strikes worldwide continued to boost the safe haven metal's appeal, although it retreated to $398.05.