U.S. investors may be overly worried about the fate of the euro, and overly confident in the U.S. dollar.

That’s the view of Kieran Osborne, co-portfolio manager of Palo-Alto-based Merk Funds.

“If you look at year-to-date returns,” Osborne said in an interview today with On Wall Street, “you see that the Euro has performed really well, and is up 8% against the U.S. dollar and all the while there has been this concern expressed about the debt problems of peripheral European countries.”

The reason for this seemingly surprising performance, he says, is that “the European central bank (ECB) has not been printing and spending as much money as the U.S.”

Osborne said that the U.S. Federal Reserve, with its initial QE1 “quantitative easing program,” essentially printed money to buy $1.25 trillion worth of problem mortgages “in the hope of stabilizing property prices.

This was followed by another $600-billion QE2 program, just ended in June, “yet housing prices continue to trend downward.”  Meanwhile, he noted, all that newly minted money is still out there, where it has been inflating many other asset values.

Adding to the problem, he says, is the fact that while Japan has a current account surplus, and the Eurozone has a balanced current account, the U.S. has a huge current account deficit.

Osborne said concerns about the future direction of the dollar are leading to a weakening of its long-standing role as the world’s reserve currency. 

“That’s why you see the significant appreciation of the Swiss franc, the Japanese yen and gold, which are increasingly becoming replacements for the U.S. dollar as a reserve currency," he said.

Osborne said the process of easing the dollar away from that status, which has long shielded the U.S. politicians from the pressure of the bond markets and the currency from speculators, is likely to occur in fits and starts.

“The currency market goes through risk-on and risk-off periods,” he explained. “It’s kind of a pendulum. But each time that pendulum swings, with money flowing out of dollars and then back into dollars, less money flows back into dollars.”

He added, “I think people need to step back and realize that the U.S. dollar cash holdings are no longer a safe asset. Treasuries are not going to outpace inflation. Six-month yields are zero and, on a real basis even at 10 years, you have negative returns."

"People need to start doing what the central banks are doing, which is diversifying out of dollars into a basket of currencies," he added. "If they’re doing it, why shouldn’t individual investors do it?”