The US dollar has seen the best of its rally lately and now technical indicators seem to be pointing to a change of direction.

It is rather interesting to know that the former Fed Chairman Alan Greenspan has now recognized that the euro is becoming more attractive and indeed a competitor to the dollar. Consequently, and for the first time in ages, there exists a viable alternative to the dollar. So let me elaborate on the various possibilities that would affect the US currency.

Generally speaking, I believe the dollar will head downward and the question on my mind is when. Back to Greenspan, when he became chairman of the Fed the dollar seemed to be in fair shape and the US was a major creditor.

However, in the 18 years of his reign, the currency lost roughly 50 percent of its value, i.e. purchasing power.

And today the US is the world’s largest debtor. On this basis alone, I anticipate the purchasing power of the dollar to decline, considerably perhaps, and faster than it did even under the Greenspan regime.

Throughout history, just as every fiat currency ever created by man has been “shaken”, I believe the dollar is no exception.

There is a sense of uncertainty about US dollar and stock markets do not like uncertainties. Gold does! Let’s look at one major uncertainty: The Mideast volatility will continue to be one extremely costly maneuver for the US as it gets increasingly involved in the region.

It took over 200 years, two world wars, a civil war, a massive infrastructure build-out and several smaller but costly wars to accumulate the first $3 trillion in US debt. Just imagine, only from 2000-2005 another $3 trillion was added to the debt pile. Meanwhile, the US dollar somehow managed to levitate above all these uncertainties. Magical indeed!

But for how long will dollar maintain its “worthiness”? A key question then: How long will foreign governments, and investors, continue to plow capital into a US balance sheet that is consistently turning negative numbers? For me, I would diversify by buying gold, platinum, oil and consolidating them as a hedge against a dollar that is losing favor.

So I ask: What’s the future of the purchasing power of the dollar? We are looking for an answer. Does anyone have one?

Geopolitics has a great impact on these scenarios. The US foreign policy is, in my opinion, out of line with the economic situation the country is in and has been for the last few years. It simply lives on borrowed money. Someone put it like this: The US is borrowing money and spending it on products they do not produce.

Russia, on the other hand, has accumulated $250 billion of reserves. This was a country that was bankrupt several years ago. Their finance think-tanks have concluded that they should not hold so many dollars and need to diversify into euro and gold.

Finally, let’s look at the fundamentals and ask how they would drive the dollar lower. I believe if the Fed freezes interest rates or reduces them, we would expect the dollar to drop lower. But why would the Fed freeze or lower the rates? If the all-important housing market continues to deteriorate, even as other data points to inflation, the Fed will remain status quo, and by the Fed simply staying in place will produce a weaker dollar.

(Habib F. Faris is the managing director of FinaVestment Ltd., London)