Risk appetite less buoyant on Monday amid reservations over US relations with China.

Trading activity was curtained by low post-Thanksgiving US volumes on Friday. Risk appetite was less buoyant on Monday amid reservations over US relations with China. Equities moved lower during Asian trading as US futures moved lower.

The dollar lost territory and dipped to 30-month lows on Monday despite slightly less buoyant risk conditions. EUR/USD posted net gains with 3-month highs around 1.1975 before stalling. Commodity currencies made net gains on Friday through US dollar weakness, fading slightly on Monday.

Italian business and consumer confidence both declined for November as social restrictions dampened activity. Euro-zone industrial sentiment retreated to -10.1 for November from -9.2 the previous month while there was a sharper decline in services-sector confidence to -17.3 from -12.1 previously. Overall business confidence declined for the first time in 7 months, although there was still an element of optimism over the 2021 outlook amid hopes for positive vaccine developments.

Trading activity was limited with a lack of liquidity following Thursday’s Thanksgiving holiday. The Euro was resilient despite further concerns over the EU budget as Hungary and Poland reiterated their opposition which will cause further political tensions and potentially delay the recovery fund.

Overall demand for the dollar remained weak during the day with further expectations of a flow of funds into risk assets amid hopes for a strong rebound in the global economy during 2021. The US currency index also tested 3-month lows with the risk that any break below this level could trigger further sharp selling.

There was also further evidence of dollar selling into the London fix which also underpinned the single currency. Commodity currencies posted net gains and EUR/USD posted 3-month highs around 1.1960 around the European close.

The dollar remained on the defensive on Monday and dipped to 30-month lows with EUR/USD edging higher to 1.1975 before stalling as markets looked to focus on the key 1.2000 level. Month-end position adjustment could cause increased volatility later on Monday.

The Bank of Japan noted on Friday that it was considering extending measures to ease corporate funding strains beyond December. The Japanese currency lost some ground on the crosses amid underlying expectations of a global economic recovery in 2021. The yen was also hampered by a fresh decline in precious metals during the day.

The Wall Street volatility index declined to the lowest level since February which also encouraged a flow of funds into risk assets. There was no significant market impact from reports that the head of Iran’s nuclear programme had been assassinated.

The dollar was unable to make any headway and USD/JPY settled just above 104.00 as US currency sentiment remained weak with the yen still able to resist sharp selling.

China’s PMI manufacturing index strengthened to 52.1 for November from 51.4 previously and above expectations of 51.6 while the non-manufacturing index edged higher to 56.4 from 56.2. The Chinese data maintained optimism over a recovery, but US equity futures moved lower after President Trump added two further Chinese defence companies to a blacklist.

Japanese industrial production increased 3.8% for October after a 3.9% gain the previous month and retail sales also recorded a strong recovery. The dollar failed to gain support and USD/JPY dipped towards the 103.80 area amid wider US vulnerability before stabilising just below 104.00.

EU negotiators arrived in London for a fresh round of trade talks over the weekend. There were reports that Chief Negotiator Barnier was prepared to make a fresh offer on fisheries, but rejected immediately by the UK. Sterling overall dipped lower amid a fresh round of unease over the trade outlook and the risk that talks could collapse.

Underlying confidence in the UK economic outlook also remained weak, especially with the potential for tough coronavirus restrictions to remain in place well into 2021. There was no significant support from reports that the UK coronavirus R number had dipped below 1.0 with new cases slowing. Sterling was also hampered by a fresh round of speculation over a second Scottish independence referendum as pressure for from the SNP for another vote continued to increase.

There were reports that the Pfizer coronavirus vaccine would be approved for UK use within the next few days. EU trade talk negotiations continued over the weekend and there was some optimism that negotiators were edging towards a deal, although with no actual breakthrough. GBP/USD recovered to near 1.3350 with GBP/EUR slightly lower around 1.1150. There will be the scope for further choppy trading on Monday amid Brexit headlines and month-end positioning.

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