Dollar may devalue by a third, warns currency fund manager

ONE OF Europe’s top currency fund managers has warned that the US dollar could devalue by up to 30 per cent in the next year as concerns over the state of the country’s ailing economy continue to grip the markets.

Bob Arends, who runs the Henderson Horizon Global Currency Fund, predicts the dollar could fall by between 20 and 30 per cent over the next year to 18 months, before confidence in the US economy returns.

“The US is in dire straits indeed,” Arends said. “The private sector is still deleveraging, financial institutions are still deleveraging, household consumption is very low and many states are bankrupt. The key problem is, what if QE2 doesn’t work?”

His comments come after the Fed last week said it would pump $600bn of fresh funds into the economy in a second attempt at using quantitative easing (QE) to kick start the recovery.

Arends moved to Henderson in January 2009 from Fortis. His fund invests in currency pairs across two separate blocks, with 70 per cent of the fund invested in G10 currencies and 30 per cent in emerging markets. Currencies – a highly transparent and liquid asset class with low correlation to equities, bonds and real estate – have become more attractive in recent years to investors keen to spread the level of risk in their portfolio.