London Briefing/Chris Johns: Stockbroker circulars rarely have memorable titles. The one that has entered into legend was a research note called Can't Recommend A Purchase.

The message, not terribly subliminal, is contained in the first letter of each word.

If memory serves it was about a Robert Maxwell company, which shows that not all broker research should be instantly dismissed. But the authors of such notes usually are. Another memorable note, with a more seasonal flavour, was called Buy Your Granny Dollars for Christmas. Again, the author's message was not hard to figure out.

It was a time of dollar weakness and the call, which turned out to be a very good one, was that the US currency would stage a dramatic rally in the forthcoming year. The recent plunge in the value of the dollar has been accompanied by an increasing number of analysts forecasting a further and prolonged fall. Is it time, once again, to bet against the herd and to give dollars for Christmas?

London contains the world's biggest foreign exchange market and, hence, a formidable array of research talent is assembled here, all trying to do the impossible: forecast exchange rates. For all the thousands of man-years that have been devoted to the building of forecasting models the dirty secret is that not a single one has worked.

Nevertheless, that does not deter the big banks from spending millions every year in the search for accurate currency guesses. To be fair to the foreign exchange analysts, similar comments could be made about the efforts to forecast stock and bond prices. But it is only in the currency market that the research effort has been such a total failure.

Right now, the views of London-based currency analysts are almost completely consistent. They believe that the dollar is going to fall further against sterling and, to an even greater degree, against the euro.

Their reasoning is straightforward: the US has an extremely large balance of payments deficit, amounting to nearly $2 billion (€1.6 billion) each working day, money which has to be found from somewhere; if it isn't forthcoming, the dollar falls.

Of course, life is rarely as simple as this; the US has been able to fund its large deficit for years via inflows into the equity and bond markets. Investors have been happy to supply the necessary funds, reckoning that returns from stocks and other assets will more than outweigh any losses on the currency.

After all, the US economy has been, and continues to be, the best story in town. Most of those flows get channelled, one way or another, through London, giving UK-based analysts an information edge when it comes to changes in investor sentiment.

Sentiment has changed. Private sector punters are no longer willing to buy US assets. The relentless growth of the US external deficit has reached a tipping point, one which means that investors can no longer ignore currency risk.

Most of that deficit is now funded by central bank purchases of US bonds. In particular, Asian central banks are the ones doing the buying.

Although this game of international finance is seemingly complex, it can be explained in simple terms. Chinese and Japanese exporters receive dollars for their output, sell them to their own central banks who in turn use the proceeds to buy US bonds. Even more simply, the US is happily exchanging pieces of paper (bonds) for goods (Japanese and Chinese manufactures). Foreign exchange analysts reckon that this can not go on for much longer.

The wrinkle is that the Chinese, in particular, are not the ones who are letting their currency rise against the dollar. This fixed link, along with others, means the euro takes all the heat. Which is odd, since European imbalances with the US are not that large. That doesn't deter the average forecaster of exchange rates. The fact that the euro is now over valued is deemed irrelevant. Some say it could go as high as 1.60.

In the short term it would be foolish to fight this trend. As equity investors have learned to their cost, "value" can mean nothing, particularly over shorter time horizons. However, as the best equity investor in the world, Warren Buffett, would say, value is the only thing that matters - but only to those that can afford to wait.

The dollar is now unambiguously cheap against the euro. Eventually, the markets will realise this. In the interim, whatever the vagaries and lunacies of the currency markets, I think it would be a good idea to give your granny dollars for Christmas.

Whether or not the dollar falls further, it will encourage her to go shopping in the US, where she will find plenty of bargains. European exporters and tourist industries beware.