Most UK investors will be licking their wounds this Christmas, with the FTSE All-Share index on track for an annual fall of 34% and the pound struggling against both the dollar and the euro.

However, anyone who made the right call on currencies will be quids in. By switching pounds into yen, the world’s strongest currency this year, you would have made 60% this year, as against 30% from dollars and 22% from euros.

Rob Burdett, co-head of multi- manager funds at Thames River Capital, said: “Currency was the single biggest differentiator in returns during 2008.”

Over the year as a whole, the pound has fallen from $1.96 to $1.49 and from €1.48 to €1.07.

Forecasters think sterling could fall to $1.40 or even $1.38 in the short term, and to parity with the euro, although they think it will have staged a recovery by the end of the year.

Michael Dicks of Barclays Wealth said: “These sharp falls mean sterling has gone from looking expensive — relative to our long-run fair-value of $1.75 per pound — to looking cheap at present. We expect sterling to remain frail in the medium term, and don’t think reaching $1.40 versus the dollar is unreasonable. It will probably recover, albeit slightly, towards the end of the year as the economic outlook improves mildly, to reach our central end-2009 forecast of $1.58 versus the dollar.”

You do not have to invest directly in currency to gain from changes, though.

BUY DOLLAR DIVIDENDS

If you think sterling will continue to weaken against the American currency, you could buy UK businesses that report dividends in dollars, as your income will get a boost when converted into pounds.

Next year, more than a third of UK dividends will come from British companies such as BP and HSBC that pay in dollars.

Mark Dampier of Hargreaves Lansdown said: “If you want to capitalise on this in the new year without taking a punt on individual stocks, UK income funds such as Newton Higher Income and Cazenove Growth and Income are quite blue-chip heavy at the moment.”

He would also look at small exporters such as Ocean Power Technologies and Global Gaming Technologies. Alternatively, the Merrill Lynch Special Situations fund aims to profit from this trend.

Times Recommends

• How to sell your home in a downturn
• How to boost your spending power
• Unemployment benefits explained