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Pound drops as Democratic Unionist Party dashes Brexit deal hopes

Northern Ireland's Democratic Unionist Party, or DUP, does not back the customs and consent proposals laid out by the U.K. government as part of its Brexit offer, increasing the chances of an extension as the Oct. 31 Brexit deadline draws closer.

"As things stand, we could not support what is being suggested on customs and consent issues and there is a lack of clarity on [value-added tax]," the DUP's Arlene Foster and Nigel Dodds said in a statement.

The pound dropped 0.6% to $1.2766 after the announcement.

The DUP said it will continue working with the government to reach a "sensible deal" that works for Northern Ireland and the entire U.K.

The development "definitely increases the likelihood of an extension," Nordea Markets analyst Morten Lund said in an email.

U.K. Prime Minister Boris Johnson must clinch a withdrawal agreement with Brussels by the end of a two-day European Council summit beginning Oct. 17. Failing to do so will require Johnson to ask for a Brexit extension to Jan. 31, 2020, unless Parliament agrees to leave the bloc without a deal.

Johnson needs the DUP's support in securing parliamentary approval for a Brexit deal.

"It seems more likely that an extension is coming," either to further discuss DUP issues or for an election, Michael Hewson, chief market analyst at CMC Markets U.K., said in an email.

The U.K. had reportedly proposed a planned dual-customs system for Northern Ireland that would see different treatments applied for all goods entering the British territory depending on their final destination in the country. That meant Northern Ireland would remain in the U.K.'s customs area while also technically avoiding a hard border separating the British territory from the Republic of Ireland.