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Analysts at Westpac explained that Brexit sentiment took a sharp downturn on the release of EU-27’s draft Brexit legal agreement and a diverging of views with UK. 

Key Quotes:

"Among a series of contentious issues, the proposal for Northern Ireland to effectively remain within EU to accommodate Good Friday peace agreements and appease Southern Ireland has flared up in front of May’s minority government which is dependent upon N. Ireland’s DUP (pro-UK, EU sceptic). The Irish border is increasingly problematic within Brexit negotiations. EU chief negotiator Barnier’s delivery of the draft agreement also criticised the UK for their inability to provide clarity on their Brexit stance in a thinly veiled show of increasing frustration. UK domestic pressure on Brexit is also increasing. May is due to speak on Friday and Monday on UK’s Brexit policy.

US 10yr treasury yields slipped from 2.91% to 2.88%, largely unwinding the jump on Fed chairman Powell’s testimony on Tuesday. Two-year yields consolidated between 2.26% and 2.28% - the latter a fresh 10-year high. Fed fund futures continued to price four more hikes by end-2019.

EUR/USD edged down 0.2% to just above 1.2200. Eurozone headline Feb CPI of 1.2%yr (previous 1.3%) and unchanged core CPI of 1.0% were as expected, though markets were skewed towards a low read after soft German, French and then Italian CPIs.

GBP/USD was the underperformer following the Brexit comments, falling 0.9% from above 1.3900 to 1.3780. USD/JPY continued its Tokyo session decline, from 107.20 in the Sydney afternoon to as low as 106.57, making the yen the strongest in the G10.

AUD/USD drifted quietly around 0.7800, heading into Sydney Thursday trade on the softer side, in the high 0.77s. NZD/USD slipped from 0.7240 to 0.7210 – a three-week low. AUD/NZD rose from 1.0780 to 1.0825 before retracing in NY."