The dollar held a firm overall tone and posted fresh 15-month highs before fading slightly on Monday.

US consumer confidence data was weaker than expected with inflation concerns undermining sentiment.

The main market focus was, therefore, again on inflation pressures, together with potential central bank and fiscal policy action. Overall confidence in the growth outlook was slightly weaker, especially with renewed coronavirus reservations.

Wall Street equities still posted net gains on Friday as negative real interest rates continued to support demand. Asian equities were mixed with a solid overall tone.

The dollar held a firm overall tone and posted fresh 15-month highs before fading slightly on Monday. EUR/USD found some support below the 1.1450 level but remained on the defensive. Sterling recovered some ground with an element of relief over Brexit developments.

Commodity currencies posted net gains amid demand on valuation grounds.

The US JOLTS data recorded a slight decline in job openings to 10.44mn for September from a revised 10.63mn the previous month, although this was above consensus forecasts and still close to record highs. The quits rate also hit a record high which suggests that the labour market overall remained notably tight.

The University of Michigan consumer confidence index declined to a 10-year low of 66.8 for November from 71.7 in October and below expectations of 72.4. The current conditions index declined to 73.2 from 77.7 previously while the expectations component retreated to 62.8 from 67.9.

The one-year inflation expectations index edged higher to 4.9% from 4.8% with the 5-year rate steady at 2.9%.

Within the data, there was evidence that inflationary pressures were undermining confidence which will ensure further strong debate over the outlook.

New York Fed President Williams focused on potential inequalities of inflation and there were no direct comments on monetary policy.

The dollar edged lower after the US data, although overall ranges were narrow, and the Euro was unable to make any significant headway as it tended to lose ground on most major crosses. Overall, EUR/USD settled just below 1.1450 and close to the lowest levels since July 2020.

There were still reservations over the increase in Euro-zone coronavirus rates and risk of further restrictions which will tend to dampen activity. The dollar was unable to make further headway on Monday and retreated from 15-month highs while EUR/USD recovered slightly to around 1.1460.

US equity futures strengthened towards the European close while US yields edged higher to reverse initial losses. The dollar overall was unable to make headway and USD/JPY retreated to just below 114.00 against the yen as the yen held firm on the crosses.

There was further evidence that higher inflation rates were having a political impact with the US administration reiterating that it was looking at ways of bringing energy prices down. There were also fresh doubts over fiscal policy given concerns that higher spending levels would reinforce inflation pressures.

Minneapolis Fed President Kashkari admitted that inflation is causing pain now but remained confident that the pressures are transitory.

Chinese industrial production increased 3.5% in the year to October, slightly above expectations of 3.0%, and there was also a recovery in retail sales with a 4.9% increase from 4.4% previously and above expectations of 3.8%.

Bank of Japan Governor Kuroda maintained a dovish stance with comments that the bank will maintain an easy monetary policy even if inflation hits 1.0% next year and that the weak yen is not causing problems at this stage. USD/JPY struggled to make headway and USD/JPY settled around 113.90 with EUR/JPY just above 130.50.

There was a slightly more optimistic tone surrounding Brexit following the latest round of talks with EU Commission Vice-president Sefcovic stating that there had been a welcome change of tone from the UK side and that a deal was possible, although he also warned that serious headway was still needed this week.

Overall risk conditions held steady which curbed potential selling on Sterling and there was an element of profit taking on short positions, especially given the potential for the Bank of England to increase interest rates at the December policy meeting.

Comments from Bank of England officials will be watched closely with Governor Bailey and other MPC members due to testify to the Treasury Select Committee on Monday.  Although Tuesday’s labour-market data will be somewhat dated, it will still be important for expectations surrounding central bank action.

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