The dollar plummeted to record lows and the price of gold touched $1,000 on Thursday as retail sales figures confirmed that the US is in recession and concern intensified about spreading distress in the hedge fund sector.

In a turbulent day of trading, the US dollar tumbled against the yen, breaking through Y100 to the dollar for the first time since 1995, before recovering to Y100.79. The euro moved to record highs above $1.56 – at which point Goldman Sachs estimated that the eurozone had overtaken the US as the world’s biggest economy measured by market exchange rates – before easing slightly reports the Financial Times.

Investors initially fled to the safety of government bonds, while stock markets fell sharply in Asia and Europe.

However, markets steadied as senior Democrats in Congress put forward a rescue plan to offer $300bn in loan guarantees for new mortgages and Standard & Poor’s issued a report suggesting that the worst of the writedowns on subprime mortgages were over.

Hank Paulson, US Treasury secretary, meanwhile, called on financial institutions to raise new equity and cut dividends as he unveiled regulatory proposals to prevent a repetition of the credit crisis.

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