(Corrects to say former Japanese currency official spoke on Saturday, not Monday, in 10th paragraph)
By Kevin Buckland
TOKYO, Sept 26 (Reuters) - Sterling tumbled to a record low on Monday as traders scampered for the exits on speculation the new government's economic plan will stretch its finances to the limit.
The British pound's searing fall helped the U.S. dollar index - which gauges the greenback versus six peers, including sterling and the euro - to a new two-decade peak.
Europe's shared currency also touched a fresh 20-year trough to the dollar on simmering recession fears, as the energy crisis extends toward winter amid an escalation in the Ukraine war. A weekend election in Italy was also set to propel a right-wing alliance to a clear majority in parliament.
The dollar built on its recovery against the yen following the shock of last week's currency intervention by Japanese authorities, as investors returned their focus to the contrast between a hawkish Federal Reserve and the Bank of Japan's insistence on sticking to massive stimulus.
Sterling tumbled as low as $1.0327, an all-time nadir, and last traded 3.34% weaker at $1.0490. That extended Friday's 3.61% drop, after new finance minister Kwasi Kwarteng unveiled historic tax cuts funded by huge increases in borrowing.
"Sterling is getting absolutely hammered," said Chris Weston, head of research at Pepperstone.
"Investors are searching out a response from the Bank of England. They're saying this is not sustainable, when you've got deteriorating growth and a twin deficit."
The euro slid as low as $0.9528, and last traded down 0.55% at $0.9641.
The dollar added 0.29% to 143.78 yen, continuing its climb back toward Thursday's 24-year peak of 145.90. It tumbled to 140.31 that same day after Japanese authorities conducted yen-buying intervention for the first time since 1998.
A former top Japanese currency official said on Saturday that policymakers likely won't try to defend a certain level, such as the 145 mark, but only conduct any further operations to smooth volatility.
The dollar index was 0.76% higher at 114, and earlier reached 114.58 for the first time since May 2002.
Elsewhere, the risk-sensitive Australian dollar slipped as low as $0.6487 for the first time since May 2020, before last trading 0.1% weaker at $0.6524.
Fellow commodity currency the Canadian dollar reached a fresh trough at C$1.3625 per greenback, its weakest since July 2020.
China's offshore yuan slid to a new low of 7.1630 per dollar, its weakest level since May 2020.
(Reporting by Kevin Buckland; Editing by Shri Navaratnam)