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It is always good to be proved right – yet quite painful to realise that it actually was at my own expense.

I have been forecasting in these columns that sterling was overvalued and set for a decline. The pound has indeed been heading steadily lower against the euro. But it was only in August that it chose to fall against the dollar, so when I returned from holiday in the States I found my credit card bills had been translated at a dismal rate.

Investing on the basis of currency movements is a complex task. All too often, the currency moves in one direction while the underlying asset market moves the opposite way, cancelling each other out. This year has been a good example. The pound may have declined against the euro. But any benefits from diversification have probably been wiped out; eurozone stocks on 3 September were down 23.6 per cent in local currency terms, whereas the FTSE100 had slipped just 14.8 per cent.

Of course, a fall in sterling is good for exporters and dollar-based stocks. Pharmaceutical stocks started September higher than they were a year ago, even as the FTSE100 was 900 points lower. The general retailing sector, with a largely domestic bias, has almost halved from its level of early September 2007.

It could be argued, therefore, that the best way of exploiting weaker sterling is simply to play the domestic markets. Unfortunately for investors, however, they have to either do their own stock picking or rely on a fund manager, There are not, as far as I am aware, any specific UK mutual funds that target overseas earners.

Admittedly, there is also a danger with overseas-focused funds. The manager may decide to hedge the currency position, wiping out the gains arising from a further sterling fall. Usually, however, it is possible to find out in advance whether the fund manager is doing so.

The good news about overseas diversification from a UK-based investor’s point of view is that Britain is not that important.

Yes, if the euro strengthens against the pound, it weakens the position of German exporters selling goods in Birmingham and Manchester. But there are plenty of other marketsa round the world. However, when the euro strengthens against the dollar, that is a problem for European manufacturers.

Another reason why overseas diversification looks smart is that the UK economy looks in a mess. Whereas chancellor Alastair Darling surely didn’t mean it was the “worst in 60 years”, Britain does face big trade and budget deficits, the after-effects of a consumer boom and an overvalued housing market and an overdependence on the struggling financial sector

The OECD thinks Britain is the only major economy facing recession this year.

There is not much the government can do about it and the Bank of England is also constrained while inflation is more than double its 2 per cent target. The FTSE100 index seems likely to be in the doldrums for a whole; although it may offer value if it falls much below 5000, it seems unable to break significantly above the 5500 mark.

If you had to guess whether or not the UK economy would outperform other developed - let alone emerging - economies over the next couple of years, you would surely guess that it wouldn’t. You would surely say that fair value for sterling/dollar was more like $1.50 than $1.80. You would surely have more confidence in the European Central Bank to control inflation or in the Federal Reserve to engineer growth than you would in the Bank of England to juggle those two objectives. Given all that, you would surely be moving more of your client’s money into international funds.