Tomorrow, the Federal Reserve is expected to raise US interest rates above their near-zero levels for the first time since 2006.
But the changes won't end there, according to most US fund managers. Bank of America Merrill Lynch's (BoAML) December survey shows how 58 per cent of them expect at least three rate hikes to take place over the next 12 months.
The results come from a survey of 215 managers with a combined $620bn in assets under their control.
When asked about the busiest area of trade among global managers this month, 53 per cent said the long US dollar was the “most crowded trade” - up from 32 per cent in November. They also noted that risk-taking declined compared to last month.
And it doesn't look like US dollar trade is going to cool down any time soon – 35 per cent said they thought it would remain busy until the Fed hiking “cycle” comes to an end – which means high activity levels are likely to occur for the next year at least.
“The strong dollar view is writ large across all asset, regional and sector allocations. It will take a very dovish Fed and weak US earnings to reverse the strong dollar view in 2016,” said Michael Hartnett, chief investment strategist at BoAML.
But while US dollars attract investment, they expect US equities to under-perform relative to other markets, while European and Japanese equities are expected to over-perform.
“European equities remain in favour despite disappointment over the ECB decision,” said James Barty, head of European equity strategy at BoAML.