GBP/USD on back foot amid ongoing Brexit drama and USD strength

• GBP is on the back foot amid ongoing Brexit saga.
• GBP is under stress on broad dollar´s recovery after Powell looks more optimistic in his Q&A.

GBP/USD is now trading around 1.3925 in the New York session, down by 0.30% amid ongoing Brexit drama and broader strength in the US dollar after new Fed chair sounds more optimistic about inflation in his testimonial Q&A session than the initial prepared statement. In his Q&A session with the US Congress, Powell said that he sees some “high prices” (inflation) and that he he has strengthened his outlook for the economy since December’17.

USD also got a boost after the new Fed chair Powell said that “market volatility won’t stop more rate hikes” in his first testimonial statement coupled with an upbeat US consumer confidence data later on.

On the other side, the GBP is now a victim of UK politics & Brexit. In the latest edition of the Brexit saga, UK Foreign Secretary Boris Johnson stated that the UK will not remain subject to ECJ rulings. In related news, Brussels is expected to demand the UK to remain under European Court of Justice oversight indefinitely post-Brexit under the divorce agreement.

Also, another report stated thaat the EU may threaten UK’s Brexit plan by rejecting British compromises and will warn that Northern Ireland must sign up to Brussels regulations. The European Union may challenge Theresa May on Wednesday when it publishes a 100-page draft Brexit treaty that ignores some of the UK prime minister’s most important demands.

French President Macron said that a customs union agreement with the UK after Brexit is possible, however, would not give full access to the single market.

On Tuesday EU session the GBP came under renewed stress when the EU Brexit head Barnier saidt that“there are significant differences on Brexit transition deal and the UK needs to produce Brexit withdrawal text on the table as soon as possible. The EU draft withdrawal treaty will include issues on which there has been no progress since Dec’17 and it must be clear that transition period must be short. The UK cannot leave the Ireland question pending and there can be no cherry picking. The Brexit clock is ticking (time is short) and it’s not possible to extend Brexit transition period beyond 2020”.

Meanwhile, UK's Hammond is expected to outline on how to include services sector in Brexit´s trade deal by next week. Elsewhere, BOE's Woods says he puts a "huge premium" on UK/EU sorting out transition deal by end-March and this shows BOE skepticism about all these daily doses of Brexit entertainment.

Earlier, Cable derived some support from latest M&A developments and Comcast’s mega GBP 22 bn bid for Sky.

Technically, amid all these Brexit squabblings and UK politics, GBPUSD now needs to sustain above the 1.4050-1.4075 zone for a further rally towards 1.4108-1.4146, 1.4208-1.4280 and the 1.4345-1.4452 area; otherwise sustaining below 1.4020, it may again fall towards 1.3932-1.3825, 1.3738-1.3650, and  the 1.3571-1.3418/1.3343 price zones in the coming days.