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Pound US Dollar Exchange Rate News: GBP/USD Breaks Above $1.28 on Brexit Deal Optimism

October 16, 2019 - Written by John Cameron

Pound (GBP) Surges on Positive Brexit Deal Signals

The Pound (GBP) stuck higher against the US Dollar (USD) and the majority of its other peers today amidst some mixed signals from the UK and EU over the possibility of a Brexit deal.

Sterling roared higher on Tuesday, with the GBP/USD exchange rate touching a new four-month high after Bloomberg reported the UK and EU were close to a draft Brexit deal.

However the Pound subsequently face some pressure in early trade on Wednesday, amidst suggestion this optimism may have been a little premature.

This comes after it emerged that the Democratic Unionist Party (DUP) is opposed to some of the concessions given by Boris Johnson in regards to the Irish border.

The proposals currently being floated will leave Northern Ireland in a customs union with the EU after Brexit, leading to the creation of a customs border in the Irish Sea.

The DUP has repeatedly insisted it will not accept any deal which would result in Northern Ireland being treated differently from the rest of the UK.

The DUP only hold 10 seats in the Commons, but its support if through to be crucial if Tory hardliners are to be persuaded to back a deal.

However the Pound roared back to life later in the afternoon, with GBP/USD temporarily breaking through the $1.28 barrier on reports that these hurdles had been cleared.

Irish broadcaster RTE reported: ‘Two senior EU sources say the main stumbling block to a deal has been removed with the DUP accepting the latest proposals on consent.’

US Dollar (USD) Subdued Following Contraction in US Retail Sales

Meanwhile, the US Dollar is struggling to find support this afternoon after some lacklustre US economic data.

According to data published by US Census Bureau, domestic retail sales suffered a shock contraction in September, slumping by 0.3% after an upwardly revised 0.6% expansion in August.

CNBC reported:

‘The Commerce Department said on Wednesday retail sales dropped 0.3% last month as households cut back spending on motor vehicles, building materials, hobbies, and online purchases. That was the first and biggest drop since February.

‘Data for August was revised up to show retail sales gaining 0.6% instead of 0.4% as previously reported. Economists polled by Reuters had forecast retail sales would climb 0.3% in September.’

Robust consumer spending has been one of the few rays of hopes in US economic data in recent months so last month’s slowdown will be particularly disappointing.

GBP/USD Exchange Rate Forecast: Can a Deal Be Found in Time for the EU Summit

Looking ahead, market are bracing for some major movement in the Pound US Dollar (GBP/USD) exchange rate in the second half of the week as the EU summit of leaders looks set to determine what happens next with Brexit.

Ahead of the summit, the publication of the UK’s latest retail sales figures may also influence GBP exchange rates. This may lend some support to Sterling if sales growth rebounded in September as expected.

Meanwhile, in focus for USD investors tomorrow will be the publication of the latest US industrial production figures.

These are expected to show that factory output contracted in September, reinforcing fears that the US-China trade war is taking its toll on the domestic economy, and liking putting more pressure on the Federal Reserve to lower interest rates.

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