AS America’s political and business leaders take their New Year break on the ski slopes of Colorado, they might see a small but growing mass of snow approaching. This is the falling dollar, whichcould become an avalanche.

It slumped nearly two cents yesterday as sterling rose to $1.8276 at one point, and the euro touched another lifetime peak of $1.28.

Gold, the traditional bolt-hole from paper currencies, hit $430.50, its highest since the 1980s, before easing later.

Neil MacKinnon, at currency fund manager ECU, says: ‘The dollar is on the ropes. Markets have the bit between their teeth.’ The US is still shrugging it all off. Treasury Secretary John Snow has said little. The Federal Reserve, far from hinting that its funds rate might rise, signals that it may stay at 1pc for months.

It is, after all, US election year.

As George W Bush plans his campaign-he knows that more Americans- have debts than go abroad.

So higher borrowing costs are a much greater problem than more expensive foreign holidays.

The White House seems to be ignoring the gathering mass of snow and getting away with it.

The dollar’s drop has turned from slide to near-freefall but not yet to crisis.

For that to happen, the flight would have to spill over into the US bond and stock markets and become a flight from all American assets.

So far, Wall Street has held up, with the Dow hovering around 10,500. The US bond market is also resilient. When it opened yesterday, the dollar was slumping. Yet US Treasuries rose and the 10-year yield dipped to 4.33pc.

Another trigger for a crisis would be for central banks to dump the dollar as a reserve currency. It still accounts for a dominant 75pc of global reserves, more than twice its natural share. The euro may be just above 10pc.

Central banks holding dollars that are falling headlong must be tempted to think twice. Yet the position is not so simple. Most of the big reserve holders are in Asia and their currencies are pegged to the US, so it is dollars they need to hold.

For all these reasons the US has seen its currency slide 25 cents in five months in sterling terms without a panic.

If George Bush does not worry, why should we? Royal Bank of Scotland’s foreign exchange strategist Adrian Schmidt says: ‘The size of the fall does not seem to bother anyone very much. It is more about its speed, and about confidence.’ The speed is unnerving. Those predicting a rally once traders at investment banks returned from holidays have been disappointed.

Undoubtedly, some traders and hedge funds have sold the dollar heavily and could soon take profits. But there is not much sign of a rally. Dealers think the markets could push the euro to $1.30 or $1.35.

What could the US do to stop the fall? The normal methods would be to talk up the dollar, raise interest rates or intervene in the markets. At this stage all three would be needed, says Simon Rubinsohn, economist at fund manager Gerrard.

Certainly, the $5bn the Bank of Japan spent yesterday trying to hold down the yen against the dollar had little effect. Nor did the $100bn it spent during 2003.

Concerted intervention by Western central banks accompanied by threats to speculators might be different. It is likely to be on the agenda for the Group of Seven finance ministers at their Florida meeting in early February.

Can they afford to leave it so long? Who knows where the dollar- will be by then. If the euro hits $1.35 or $1.40, the sluggish Euroland recovery may be snuffed out.

That could persuade the Europeans to join a rescue.

MacKinnon says: ‘Markets will find central banks’ pain threshold.’ Though the dollar is the problem, Europe shares the pain.

European Central Bank rates, which have fallen to 2pc, may have to fall some more. HSBC economists see them at 1.5pc in a year.

That brings us to UK interest rates, which most expect to rise to 4.75pc or even 5pc in 2004.

The CBI’s retail survey, which suggests Christmas sales were stronger than expected, puts an early rise on the cards.

So does the Halifax house price report a 15.4pc annual rise, including 1.8pc in December.

UK rates might be raised from 3.75pc to 4pc this week, or at least by February. By year end, though, it is US rates that are likely to be rising, and the rise could come much sooner.