There may be a short-term bounce in the U.S. dollar once the Federal Reserve gets its much-ballyhooed decision on additional easing out of the way Wednesday. But many observers warn the greenback will continue its downward trek — by as much as 20%, according to one influential investor.

In the long run, analysts say, the U.S. dollar will remain under pressure while currencies in emerging markets surge as legislators in Washington grapple with an enormous fiscal mess. Further, the Fed's latest efforts to boost the U.S. recovery risk triggering inflation fears that erode the dollar's purchasing power and make it less appetizing to investors.

"We certainly think there's still a long way for the U.S. dollar to continue to fall," said Kieran Osborne, a co-portfolio manager at Merk Mutual Funds of Palo Alto, Calif., which manages more than US$550-million in three currency-focused funds. "There are just a lot of headwinds remaining."

How much further the U.S. dollar stands to fall before it hits a fair value is anyone's guess. The greenback continued to lose short-term ground in yesterday's session, with the Australian dollar once again reaching parity with the U.S. currency after Australia's central bank surprised markets and raised its benchmark policy rate by another 25 basis points. Meanwhile, the Canadian dollar traded above the key US99¢ mark in another run to parity, which it hit briefly last month.

Mr. Osborne said the loonie would be kept at "elevated levels" compared with its U.S. counterpart for the foreseeable future. His reasoning: Investors would seek shelter in asset classes like gold, commodities and metals of which there is a finite amount — unlike paper currencies, which central banks like the Fed can create through easing policies.

The Canadian dollar's value is closely linked to commodity prices, and as such has been called a petrocurrency.

Since August, when Fed chairman Ben Bernanke first hinted that additional easing was possibly in the offing, the U.S. dollar has shed roughly 8% in value.

Bill Gross, the influential bond fund manager, said it was "possible" the greenback could lose as much as 20% over the next few years as a result of the Fed's plan to purchase additional assets, or so-called quantitative easing, in an effort to push the U.S. recovery into a higher gear.

"QE not only produces more dollars but it also lowers the yield that investors earn on them and makes foreigners, which is the key link to the currencies, it makes foreigners less willing to hold dollars in current form or at current prices" Mr. Gross told Reuters.

Mr. Gross's long-term pessimism is offset somewhat by some forecasts of a U.S. dollar upswing following the Fed decision. Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said potential weakness linked to this new round of Fed easing has been built into the dollar's value. Once the decision is released, and other "uncertainties" — led by the fate of the Bush-era tax cuts--are resolved, he said the greenback "is on the verge of turning."

Jeremy Stretch, head of foreign-exchange strategy at CIBC World Markets, said the U.S. dollar's recent drop was overdone by initial expectations of an aggressive "shock and awe" easing campaign from the Fed. Those expectations have now been tempered.

Still, Mr. Stretch said, "over the longer term the U.S. dollar will remain in a longer-term structural downtrend," due to Washington's ballooning debt and deficit levels. Compounding the problem will be the threat of legislative logjam in the U.S. Congress; a move by global central banks to hold fewer U.S. dollars in their reserves due to the U.S. economy's structural flaws; and the attractiveness of emerging markets to yield-hungry investors.

"The differentiation between what's happening in the developed and developing world is very marked, and I think that's going to continue to see relative underperformance of the old-world currencies," he said.

Mr. Osborne of Merk funds added the U.S. dollar would not hit a floor until global imbalances — from China's excess savings to the United States' overstretched balance sheets — are unwound. And, he added, "there are a lot of imbalances to unwind."

Among the necessary factors is for China to allow its yuan to appreciate. Mr. Osborne said that would not happen as quickly as U.S. policymakers would like as that would create "added volatility and risks" for the Chinese economy.