Which way the U.S. dollar will go is a question.

Longer term, money managers expect the dollar to decline due to the U.S. government deficit and slow economic growth. Money, at this writing, already was flowing into higher-yielding currencies. Only when the Fed starts tightening by raising short-term interest rates, which some expect to happen in 2012, is the dollar apt to strengthen.

"As soon as the Fed starts to position itself for eventual monetary tightening-long before it eventually hikes interest rates, which we do not expect until the second quarter of 2012-[will] the dollar ... rally," says Katherine Klingensmith, strategist at UBS Financial Services in New York.

However, the World Bank paints a gloomy long-term picture for the U.S. dollar. Its dollar report last June predicted the decline of the U.S. dollar as the world's major reserve currency by 2025. It cites emerging economies, which are expected to grow at 4.7% annually-more than twice the 2.3% annual rate of advanced economies.

The greenback, the report says, will be replaced by a multi-currency system.

Not everyone is bearish on the U.S. dollar, which last May hit its lowest point since 1971, when the 1944 international Bretton Woods (New Hampshire) system of money management agreement ended. The termination of that agreement, signed by 44 nations, ended the convertibility of the U.S. dollar to gold, leaving it backed by nothing more than a U.S. government promise. A Reuters poll of 61 analysts last June indicated that the dollar could strengthen if the global economy weakens.

Nevertheless, concerns about the demise of the U.S. dollar have prompted some financial advisors to tactically integrate currencies into client portfolios. Foreign currencies typically are more liquid than other types of assets and have no correlation to U.S. stocks and bonds.

George Feiger, Ph.D., the CEO of the money management firm Contango Capital Advisors in San Francisco, is one example. Shorter-term strengthening of the U.S. dollar is not due to stronger economic fundamentals, but to problems in the rest of the world, Feiger says. Over the short term, he was keeping money in U.S. investment-grade bonds with a duration of four years or less.

"The Fed is keeping rates low at the short end to stimulate the economy and to keep the government deficit from ballooning if they raised interest rates," Feiger says.

Low interest rates at home and higher rates abroad spell dollar weakness, he believes. He invests in U.S. dollars due to global economic concerns. But longer term, he expects market conditions will change, and he will move into foreign currencies.

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