Dollar stands tall against euro as investors watch Catalan vote aftermath
The dollar started the month on a high note on Monday, underpinned by higher U.S. yields, while the euro came under pressure as investors monitored the aftermath of an independence vote in Spain's Catalonia.
Higher U.S Treasury yields helped bolster the greenback. The 10-year U.S. Treasuries yield (US10YT=RR) rose to 2.360 percent in Asian trading compared to Friday's U.S. close of 2.326 percent.
Liquidity was relatively thin on Monday, with China, South Korea, Hong Kong and India and markets closed for public holidays. In Australia, trade was light with Sydney closed for a holiday while Melbourne remained open.
The euro slipped 0.3 percent to $1.1776
"With so many regional markets shut in Asia today, it wouldn't be at all strange if the euro made bigger moves later, as Europe comes in," said Kumiko Ishikawa, FX market analyst at Sony Financial Holdings in Tokyo.
The head of Catalonia's regional government opened the door to a potential declaration of independence from Spain.
Against the yen, the dollar rose 0.3 percent to 112.84
Data released earlier on Monday showed Japan's big manufacturers were the most confident about the business outlook in a decade in the last quarter, a closely watched central bank survey showed on Monday, a sign the country's economic recovery may be gathering steam thanks to robust global demand.
The figures could also help premier Shinzo Abe as he tries to convince voters in an Oct. 22 election that his "Abenomics" stimulus policies have improved their livelihoods, analysts say.
There are two main directional scenarios for the yen following the election, said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.
"If the results are perceived as a bad outcome for Abe's party, then some investors might view it as the beginning of the end of his 'Abenomics,' meaning the end of the yen-weakening trend," he said.
"But there is another possibility as well, with both parties calling for stimulus steps, which some people think might lead to 'helicopter money,' so then they might sell yen," he said. "Overall, though, dollar/yen is still dominated by U.S. factors."
U.S. data on Friday showed consumer spending barely rose in August. But that was offset by an unexpected increase in the Institute for Supply Management Chicago's purchasing managers' index and an in-line reading on consumer sentiment.
Federal Reserve Chair Janet Yellen said earlier last week that the central bank needs to continue with its gradual rate hikes despite broad uncertainty about the path of inflation.
Fed funds futures showed investors were pricing in a nearly three in four chance that the Fed would raise interest rates again in December, from around even odds earlier last month.
Even with rate hike expectations building, speculators' net short bets on the U.S. dollar rose to their largest in the latest week through Sept. 29 since late September 2012, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday. [IMM/FX]
The data showed the value of the dollar's net short position was $17.36 billion, up from net shorts of $13.19 billion the previous week. Speculators have been net short the dollar for 11 straight weeks.