* Tuesday’s ECB conference hosts galaxy of central bankers
* Political headwinds undermine sterling
* Dollar supported by firm U.S. yields
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Saikat Chatterjee
LONDON, Nov 13 (Reuters) - The euro drifted lower on Monday, consolidating below a one-week high tested in the previous session as investors moved to the sidelines before a central bank conference on Tuesday where central bankers may share their thoughts on the global economy.
European Central Bank chief Mario Draghi, U.S. Federal Reserve Chair Janet Yellen, Bank of Japan Governor Haruhiko Kuroda and Bank of England head Mark Carney will form an all-star panel on Tuesday at an ECB-hosted conference in Frankfurt.
“Tomorrow’s summit assumes as much importance as the Sintra summit as there are many policymakers in one forum and they may strike a cautious stance on the underlying complacency evident in markets,” said Christin Tuxen, an FX strategist at Danske Bank.
Despite last week’s wobble, global stocks remain poised near record highs with market gauges of volatility near recent lows, indicating investors remain bullish in the closing weeks of the year despite double digit returns.
Draghi hinted at tweaks in the central bank’s aggressive stimulus policy at a major forum in Portugal in June, fuelling a euro rally and prompting him to soften his stance.
The single currency climbed more than 8 percent since his comments at Sintra before peaking out at more than a 2-1/2 year high near $1.21 in early September.
It has declined more than 3.5 percent since and was trading a shade weaker at $1.1650 against the greenback on Monday.
The dollar continued to enjoy the support of last week’s spike in U.S. bonds yields, with sterling - battered by political headwinds - the biggest loser.
Sterling was down 0.7 percent at $1.3087, dropping away from an eight-day peak of $1.3229 scaled on Friday on better-than-expected British industry data.
The Sunday Times reported that 40 members of parliament from British Prime Minister Theresa May’s Conservative Party have agreed to sign a letter of no-confidence in her.
That is eight short of the number needed to trigger a leadership contest, through which May could be forced from office.
“The political news over the weekend show that her position is coming under increasing pressure and currency markets are reacting to that,” said Alvin Tan, an FX strategist at Societe Generale in London, who recommends holding euros against sterling.
The newspaper report lifted implied currency volatility on sterling - market gauges to predict price movements for currencies - from recent lows even as FX options market data showed positions were evenly balanced.
Currency strategists predict further pain for the pound.
Morgan Stanley strategists said in a note that sterling was trading 2 percent above levels that 10-year differentials between UK and U.S. yields suggested, while positioning data showed leveraged investors were still net long sterling assets.
The dollar index against a basket of six major currencies was 0.25 percent higher at 94.617, following a 6-basis-point rise in long-term U.S. Treasury yields on Friday.
The index ended the previous week with a loss of 0.6 percent amid investor disappointment that a proposed U.S. corporate tax cut could be delayed to 2019.
Spreads between 10-year U.S. and German bond yields were trading at 198 basis points, not far from a six-month high of 204 basis points hit in late October.
For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Editing by Ed Osmond)