The dollar dropped against the pound and the euro after America was stripped of its prized top credit rating.

Sterling rose by almost a cent against the dollar after Moody’s cut the US’s credit rating by one notch on Friday, becoming the last of the major ratings agencies to downgrade the country.

It cited concerns about the growing $36 trillion federal debt pile, which is set to rise even higher under Donald Trump’s tax-cutting plans.

The downgrade sent the benchmark S&P 500 as much as 1pc lower in early trading, while the tech-heavy Nasdaq Composite sank more than 1.4pc.

This led to the likes of Tesla and Apple falling by 4.8pc and 3.3pc, respectively, although they later trimmed the scale of their losses.

The White House said on Monday that Mr Trump disagreed with the decision by Moody’s, adding that the US president had confidence in the economy.

Hedge funds led the sell-off in US assets, which also saw the euro strengthen to almost $1.13 and the greenback slip against all of its G10 peers.

It comes a day after Christine Lagarde, the president of the European Central Bank, said the euro’s recent strength was a result of Donald Trump’s unpredictable policymaking.

“It’s counter-intuitive, but justified by the uncertainty and loss of confidence in US policies among certain segments of the financial markets,” she told La Tribune newspaper

The move by Moody’s also triggered a rise in US borrowing costs.

The yield on 30-year Treasuries, as US government bonds are known, rose above 5pc in early trading on Monday. Yields move inversely to price, meaning investors are selling US debt and demanding a higher interest rate to hold it.

The jitters also hit UK borrowing costs, with 30-year gilt yields rising by almost 0.1 percentage points on Monday morning.

Long-term borrowing costs for Washington are now at their highest level since late 2023 and compare to rates as low as 1.2pc in 2020.

The downgrade came shortly after Congress failed to push through Donald Trump’s “big, beautiful bill” of tax cuts that economists have warned will trigger a renewed surge in borrowing.

President Trump is seeking to push through a package of new tax cuts that economists fear could worsen federal finances.

Analysts say the plan, which would extend the 2017 cuts from Mr Trump’s first term, would add $3 trillion to $5 trillion to the nation’s debt over the next decade.