Global fund managers turned sour on the euro in June after a two-year love affair, convinced the US will lead a rebound in the global economy, according to the Merrill Lynch Fund Manager Survey published today.
The dollar is favoured in part because of the recovery potential of US corporate earnings, along with rising inflation figures in the euro zone's key economies.
"There has been a sea change on currencies," said Mr David Bowers, chief global investment strategist at Merrill Lynch.
Bulls of the euro have thrown in the towel.The survey also shows fund mangers plan to raise exposure to equities and cut bonds, believing favourable monetary policy and earnings growth will boost stock prices.
Fund managers see the US as best placed to benefit with the ECB hamstrung from growth enhancing interest rate cuts by the spectre of inflation.
Fund managers believe the global economy will recover but they don't know when, said Mr Bowers.Therefore investors are turning hot on the US and the dollar and cold on Japan and the euro.
Fund managers' optimism on the prospects for the global economy strengthened in June with a net balance of 37 per cent saying the macro situation would improve on a 12-month view up from 11 per cent in May.
The US is seen as the most attractive market with 35 per cent of managers saying they were bullish about US stocks.
Top sector picks were energy, basic industries and technology while telecoms and global food producers were least liked, reflecting a shift from defensive to more economically sensitive stocks.
The survey also showed that fund managers remain cautious about the recovery with many holding risk averse portfolios and overweight in cash.
Prospects for a further slump in equities remains relatively high in many fund managers' view with a majority saying there is a 20-30 per cent chance of markets falling by 10 per cent in the next three months.
With markets seen as fairly valued, however, 84 per cent of fund managers said they would buy such a dip.
The survey was conducted between June 1st and June 7th. It covered 212 fund management organisations.