Jim Leaviss and Mike Riddell, the lead manager and deputy manager of the M&G Global Macro Bond Fund: "Jim and Mike do not believe that the US dollar will come under substantial pressure from the record- low interest rates and ongoing quantitative easing. This is because there is so much monetary easing taking place in other parts of the world, even in emerging markets, that are very vulnerable to a slowdown in the developed countries and China. Jim and Mike thus believe that developing countries could see their currencies deteriorate. Emerging markets’ losses would mean the US dollar’s gain, as currency rates are based on relative valuation.
At the moment, Jim thinks that the US dollar is undervalued, especially relative to sterling and the Australian dollar. He has made this assessment based on different metrics, such as the real effective exchange rate, where the exchange rate is adjusted for inflation and trade. This is particularly the case given the upbeat outlook for the US compared with the two other countries. What is more, the US dollar is the world’s number one reserve currency, held in considerable quantities by governments as part of their foreign exchange reserves. This gives the dollar stability and significant liquidity compared with most other currencies. For these reasons, Jim’s view of the US currency is positive and on 30 October 2012 the fund’s allocation to the US dollar was 63%."