Sterling hammered by Brexit warning

What a difference a few hours makes. New York traders awoke and found the US dollar very modestly lower against the G-10 major currencies; the Japanese yen was the exception. The overnight session had been uneventful except for a nasty short squeeze in NZDUSD.

Sentiment started to shift when Bank of England Governor Mark Carney started chirping. The governor’s made the glaringly obvious statement that “there would be big economic consequences in the event of a no-deal (Brexit) scenario.” GBPUSD traders, who earlier ignored a slowdown in average weekly earnings, started selling GBPUSD. Elevated Brexit fears and the possibility of a leadership challenge to Prime Minister May exacerbated the drop from 1.3267 to 1.3145.

The GBPUSD retreat kicked off a fresh wave of US dollar demand. USDJPY, which opened in New York at 112.38, was probing resistance in the 112.75-80 area at 1400 GMT, just as Fed Chairman Powell’s Congressional testimony began. EURUSD followed GBPUSD lower, dropping from 1.1728 to 1.1685.

The commodity currency bloc sank en masse. Kiwi erased all of its earlier gains. USDCAD rallied from 1.3127 to 1.3187 with free-falling WTI oil prices helping the move.

Wall Street opened lower, in part becomes of a drop in Netflix (NFLX: NASDAQ) and on caution ahead of Jerome Powell’s speech. The Fed chair repeated that the central bank should continue gradually raising interest rates because of strong economic growth and stable inflation. US economic data was in line with forecasts 

The intraday and short-term GBPUSD technicals are bearish while prices are below 1.3340, supported by this morning’s break below 1.3210. Additional weakness below 1.3130 would set up a test of support at 1.3030.