US dollar stands tall against euro as investors watch Catalan vote aftermath

[TOKYO] The US dollar started the month on a high note on Monday, gaining against the euro and other major counterparts as investors monitored an independence vote in Spain's Catalonia.

The US dollar index, which tracks the greenback against a basket of six major currencies, added 0.1 percent to 93.192 .

Liquidity was expected to be thin on Monday, with China, South Korea, Hong Kong, India and Australia markets closed for public holidays.

The euro edged down 0.1 per cent to US$1.1796, as investors nervously watched the situation in Spain, where police used batons and rubber bullets to thwart the Catalan vote on Sunday in a show of force that left hundreds injured.

The head of Catalonia's regional government opened the door to a potential declaration of independence from Spain.

Against the yen, the US dollar rose 0.2 per cent to 112.71.

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 US factors."

US 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 US dollar rose to their largest in the latest week through Sept 29 since late Sept 2012, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The data showed the value of the US dollar's net short position was US$17.36 billion, up from net shorts of US$13.19 billion the previous week. Speculators have been net short the US dollar for 11 straight weeks.

REUTERS