By Reuters

Filed under: Currency, International Trade, Federal Reserve, World Markets, Interest Rates

By Wanfeng Zhou

NEW YORK — The stars are aligning for U.S. dollar bulls. For more than a decade, good times in such markets as stocks and real estate were bad news for the greenback. Investors tended to use the U.S. dollar only as a life jacket when storms raged in risky markets.

Now, though, rather than serving as a hiding place, the dollar is benefiting from the stock market‘s surge to new highs and the improvement in U.S. economic data. The dollar nudged down a tad from a seven-month high against a basket of currencies on Thursday even as the Dow Jones industrial average surged to another record high despite interest rates remaining at record lows.

For instance, the dollar has gained fairly steadily against the yen. In January, it was trading at 86.67 yen to the dollar. On Thursday it was trading at 96.06 to the dollar. Likewise, the British pound has fallen from 1.62 to 1.51 to the dollar so far this year.

The moves suggests the dollar has entered a multi-year bull cycle, and marks a major shift in its behavior against other asset classes.

“Certainly, all the pieces are slowly coming into place for a bull market for the dollar,” said Paresh Upadhyaya, director of currency at Pioneer Investments in Boston, which had assets under management of $204 billion as of the end of last year.

The dollar has outperformed eight out of nine major G-10 currencies so far this year. Political uncertainty in Italy has re-ignited fear about the euro zone’s ongoing debt crisis. Weak economic growth and the prospects of aggressive monetary easing in Japan and Britain have driven the yen and sterling to multi-year lows.

To be sure, there are those who caution that spending cuts from Washington could put a damper on economic growth and the Federal Reserve has pledged to keep interest rates low for the foreseeable future.

Still, capital flows and futures positioning bears out the attitude to U.S. assets.

Cross-border inflows into U.S. stocks are tracking at about $100 billion to $150 billion for 2013, compared with a net neutral level in recent years, according to Nomura Securities. Futures activity shows increased bets on the dollar from speculators.

Commercial Property Sales Affected

And stocks aren’t the only U.S. asset drawing in overseas capital. A recovering commercial property market, where transactions have rebounded by more than four-fold from their post crisis-low in 2009, is also enticing foreign investment.

Purchases of commercial real estate by foreign buyers totaled $24.18 billion in 2012, according to Real Capital Analytics, which tracks the commercial real estate market. That’s up 1.6 percent from the year before …read more
Source: FULL ARTICLE at DailyFinance