A fist full of sterling – weak dollar presents opportunities for Brits

As the dollar falls to a 26-year low against the pound, savvy investors may want to resist the temptation to ditch US equities altogether says Jeremy Tigue manager of the Foreign & Colonial Investment Trust, Britain's oldest global growth fund.

The dollar which has continued its downward spiral, breaching the $2 mark against the pound sterling this week to $2.05 against the pound today, has painted an uninspiring picture for UK investors into US equities, but according to Tigue there are still some great opportunities.

"The last time it (the dollar) was pitted against the pound at over $2 for any significant length of time was in 1979 at the beginning of the North Sea oil boom, which lead to a sharp spike in oil prices. Then it was a case of the pound strengthening thanks to its new found oil reserves and UK investors saw the value of their currency rise from $1.60 to $2.40.

"Today's dollar exchange rate however is a different story altogether. From a high of $1.38 to the £1 on 13 June 2001, the dollar has felt the strain of a widening budgetary and trade deficit and has followed a downward trend not just against the pound sterling but against the Euro and other major currencies worldwide," said Tigue.

However according to Tigue there are signs that this trend could be about to reverse – potentially providing a fillip to sterling investors.

"The pick up in UK and European growth over the last few years should see demand for US exports continue to increase not least because of today's more favourable exchange rates. The US budgetary deficit is also closing. After making a swathe of tax cuts in 2000 and 2001 to avert a recession, recent tax increases are slowly starting to make their way through the economy and should relieve any budgetary fears," added Tigue.

Any improvement in the health of the budget and trade should act as a catalyst for dollar strengthening but Tigue said it was difficult to predict when that would happen.

"In the meantime, US exporters and companies with overseas earnings should benefit and by default large blue chips like General Electric and ExxonMobil look attractive. Failing that, investors fed-up with the UK summer could take advantage of the favourable exchange rate and the slowdown in US house prices and buy a beach-side house in Florida – providing, of course, they've first used their ISA allowance to buy Foreign & Colonial Investment Trust shares" he mused.