US spending spree sends pound soaring against dollar

The dollar collapsed today after traders gave the thumbs down to US Federal Reserve plans for a drastic $1 trillion spending spree to revive America's economy.

Sterling was up 5.62 cents to $1.4532, its biggest one-day gain since 1985, as the greenback tumbled against a host of currencies including the Japanese yen and the euro, which was up 5.59 cents to $1.3669.

It came as analysts warned the ambitious decision by the Fed to start "printing money" could be an indication that the US economy is in even worse shape than originally feared.

"The dollar was taken to the woodshed and beaten like a dog, and after a short rest, beaten like a dog again," wrote currency strategists at RBC Capital Markets. "Market sentiment on the Fed's manoeuvre was crystal clear."

In a surprise move last night, the Fed said it would mimic the Bank of England's strategy of quantitative easing", buying up to $300 billion of Treasury bonds over the next six months to drive down interest rates and fuel economic growth.

It also said it will buy $750 billion of mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac on top of the $500 billion it has already spent.