EXPERTS predict the dollar could fall to its lowest level against the pound for more than a decade. In the coming months it is expected to slide to $2 against the pound for the first time in 12 years — an 8% drop from Friday’s rate of $1.85.

Even if you don’t have money in America the decline could have a big impact on your investments. Many of Britain’s biggest companies earn most of their profits in the US, and some pay their dividends in dollars. Even if you don’t invest in these companies directly you will almost certainly hold them in your pension fund.

However, a slump in the dollar will be welcomed by people who have taken out dollar- denominated mortgages to buy holiday homes in America.

Here we answer your questions on the declining dollar.

Why is the dollar falling?

The dollar has already fallen in value by 12% against the pound over the past year.

Economists blame the dollar’s decline on America’s huge current-account deficit — it is importing far more goods and services than it is exporting. The trade gap is currently about $660 billion (£360 billion).

Jeremy Batstone of Charles Stanley, a stockbroker, said: “America has been attracting vast inflows of money, principally from Asian central banks, which have been buying Treasury bonds. But overseas buyers have become nervous about the scale of America’s indebtedness. If they start to move money out, the value of the dollar will inevitably fall.”

A rush to sell could send the dollar plunging. However, most experts think a decline will be more gradual.

David Bloom of HSBC, an investment bank, said: “Overseas central banks will not want to spark a currency crisis. They will want to manage a devaluation in an orderly fashion.”

Will the dollar continue to decline?

Many experts think the dollar will continue to fall against other currencies reaching $2 to the pound.

However, some dissenters argue that the exchange rate will remain stable because sterling will weaken with the dollar. Bloom believes that the pound will remain around $1.80 for the rest of the year.