Sovereign wealth funds likely to turn to Asia

The trouble at Fannie Mae and Freddie Mac, the U.S. mortgage finance companies, may discourage sovereign wealth funds from buying dollar-denominated assets, but the euro is not likely to be the main beneficiary.

Instead, these government-run investment entities, which control more than $3 trillion in assets, are likely to turn to investments in Asia, a move that will probably push the dollar lower against Asian currencies, including the yen.

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"Sovereign wealth funds that invested in U.S. banks have lost 30 to 50 percent of their investments in the space of six months, so they're becoming more cautious," said Nouriel Roubini, a business professor at New York University and head of Roubini Global Economics.

In addition, the fear that more mortgage market losses at U.S. banks will force the Federal Reserve to reduce interest rates again this year may signal even more trouble for the dollar.