Marketmind: Dollar flexes its muscles

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever.

Global trading volumes return to more normal levels on Tuesday as U.S. and UK markets re-open after their one-day holidays, with optimism over a U.S. debt ceiling agreement set to support risk assets and lift bond yields and the dollar.

The dollar on Monday held firm around its strongest level in over two months against a basket of major currencies and a six-month peak against the Chinese yuan, and strengthened to a new six-month high against the Japanese yen.

The onshore yuan traded weaker than 7.00 per dollar for the eighth straight day, as markets position for another hike in U.S. interest rates and potential policy easing from Beijing.

The dollar nudged 141 yen before closing slightly lower on the day, with traders' hawkish Fed forecasts relative to the Bank of Japan's policy outlook again keeping dollar bulls on the front foot.

If U.S. implied rates and bond yields rise on Tuesday, there is reason to believe the dollar's recent bull run will continue, especially against currencies in Asia where many central banks have signaled their hiking cycles are over.