"The U.S. dollar is finished," says Jim Rogers, former George Soros partner turned author and financial gadfly (or guru, depending on whom you talk to). "The most recent move [by the Fed] was a shout to the world from the Luddites in D.C. that they have given up on the U.S. dollar."

Rogers' position may be extreme, but it is indisputable that the dollar is in trouble. Since the interest rate cut, the dollar keeps hitting new lows against the euro and the pound. In October, embarrassingly, it even dropped below parity with the Canadian loonie.

What, if anything, should a concerned—or opportunistic—advisor do? "Advisors have a big challenge," says Axel Merk, manager of the Palo Alto, Calif.–based Merk Hard Currency Fund. "They see the dollar weakening, but they don't see themselves as currency experts. Nor do their clients want them to become currency traders."

Nonetheless, advisors are pursuing various strategies to protect their clients or, better yet, to exploit the dollar's drop. In the past, playing currency markets may have been seen as purely speculative. But with clients losing purchasing power in a marketplace stocked with imported goods, creating some sort of currency strategy is more crucial to the health of clients' portfolios.

Behind the Slide

The subprime crisis is usually fingered as precipitating the recent plunge in the dollar. The weakening trend, however, has been in place for some time: The dollar dropped below the euro in 2002 and hasn't looked back. In fact, when the subprime crisis first came to light this summer, the euro was affected first, falling against the dollar.

In late August, some market observers worried that the dollar might actually collapse. The fear was that Saudi Arabia would break its currency peg to the U.S. Thankfully, that did not happen, but the dollar has continued to slide nevertheless. Aside from interest rate cuts, a second immediate driver has been that Middle Eastern nations are reallocating their currency reserves, giving greater weight to the euro and less to the dollar.

Factors driving currency are complex and perhaps beyond the forecasting skills of individual advisors, or even the market. In general, though, "trends in currencies are not dependable. Unless currencies are managed [like the Chinese yuan], there is no rule that they will trade in specific ranges," says Naomi Fink, a currency strategist at BNP Paribas in New York City.

The real question is, what will happen in the future? Have advisors who are just becoming currency-conscious already missed the boat? The answer could well be yes: Fink argues that any euro appreciation is capped by a pain threshold, which she puts at about $1.45. "Beyond this point the price isn't sustainable," says Fink, arguing it would limit trade and lead to a political intervention. Even without an intervention, the weak dollar is hurting European exporters and economies, causing downward pressure on the euro. Therefore, the bank forecasts a mild decline against the dollar; it's expecting to see the euro top out at $1.38 at the end of the third quarter, and $1.35 at year-end.

The Way of Yen

The main action for the dollar, according to Fink, will be against Asian currencies which, unlike the euro, are largely seen as undervalued. The big change here is inflation in Asia, and in China in particular. According to Fink, "one way to get control over inflation is greater currency convertibility, which will translate into a stronger yuan." Similarly, the risk of inflation in Japan could force the Bank of Japan to raise interest rates, and with it the value of the yen. For advisors seeking currencies that will appreciate, Fink says, "I am bullish about the yen. I would look at almost anything in Asia."

Political factors could distrupt these forecasts, though. "There are as many political risks regarding the euro as there are the dollar," says Harold James, PhD, an economic historian at Princeton University. It was only a few years ago, he says, that people were talking about breaking up the euro. Stresses from the sky-high euro on weaker European economies, such as Italy, could easily revive such talk. James perceives a "nervousness" in Europe about its currency right now.

The Dollar Bears

Though the future direction of the dollar is uncertain, it has clearly lost value and may not rebound any time soon. "I strongly urge advisors to learn how to protect their clients," says Rogers. He suggests opening foreign bank accounts in "sound currencies," such as the Swiss franc or the euro, and he claims that this is remarkably easy. Not every advisor may agree, nor may clients want to wake up to runs on banks that aren't FDIC-insured. Here are some more common approaches to dealing with the dollar: