May's dismissal of Barnier border offer sinks pound

Prime Minister Theresa May is preparing to reject an improved European Union offer to solve the issue of the Irish border post Brexit, reports stated on Wednesday, knocking the pound back from its seven week high.

May travelled to Salzberg on Wednesday to push for support for her Chequers plan, following comments from EU chief negotiator Michel Barnier on Tuesday that the EU was preparing to table a new “backstop” proposal that he hoped the government would be able to support.

Barnier said he was “ready to improve” the EU's offer to the UK on the Irish border issue, with a plan that would not involve customs checks in the Irish Sea and would respect the “territorial integrity of the UK”.

Government sources suggested that Barnier had still not dropped his insistence that Northern Ireland be treated as a separate customs jurisdiction from the rest of the UK, telling the The Times that this did not "respect our red line that there is not a customs border in the Irish Sea"

Theresa May earlier wrote, in an article for German newspaper Die Welt published on Wednesday, that the plans remain “totally unacceptable” as they would did not respect “the constitutional and economic integrity of the UK” and would create an external border between parts of the UK. She made no mention of Barnier’s adapted proposals, which would see most checks take place at company premises, or at the point of sale.

Donald Tusk, the president of the European council, said he would propose an additional summit around mid November to try and finalise a Brexit deal. Speaking to reporters in Salzburg he said the UK’s proposals around the Irish border and the framework for economic cooperation "will need to be reworked and further negotiated" and said he would like to finalise the talks by the end of autumn.

The pound, which earlier popped up above $1.32 on stronger UK inflation data, slid back down to $1.3133 by 1525 BST.

"While this is only a minor setback in what is likely to be lengthy negotiations towards a solution that suits both sides, the pound has become extremely sensitive to any Brexit-related developments and this is quite clearly an important one," said market analyst Craig Erlam at Oanda.

"These flash headlines are likely to continue to have a significant impact on the currency over the coming months as traders fret about the prospects of a cliff-edge no deal Brexit and the potential chaos that could ensue."

As ever, said Neil Wilson at Markets.com, the hard data matters less than Brexit for sterling. "The positive sentiment that had been building for some weeks from the middle of August has undoubtedly taken a hit, but it still looks like a deal is more likely than not. However more ‘bad’ news like this will expose the pound to more downside risks.