EU's Barnier sees ambitious security partnership with Britain after Brexit

Pound to euro exchange rate Sterling drops

Pound to euro exchange rate Sterling hits another 11-month low today

But Michel Barnier tempered those comments on Thursday, saying on German radio that the European Union must also prepare for the possibility of a no-deal Brexit. "It's essential to conclude negotiations because, with no backstop, there can be no agreement [on Brexit]", Barnier warned.

His comments set the stage for the contentious Irish issue to remain at the centre of talks over the next six weeks, ahead of a summit of European Union leaders in October that London continues to see as the deadline for a deal to be reached. That threatens to erect an internal trade barrier in the Irish Sea between Northern Ireland and the rest of the UK.

The UK's Brexit secretary, Dominic Raab, told a joint press conference in Brussels that the wishes of all communities in Northern Ireland needed to be respected, in an indication that the British government will not accept checks unacceptable to the Democratic Unionist party.

EUROPEAN Union chief negotiator Michel Barnier warned that a no-deal Brexit was still a possibility, after comments he made on Wednesday were interpreted by investors as implying a successful outcome to talks with the United Kingdom was more likely.

"It's a matter of some urgency".

But both conceded the biggest issues remain unresolved. "With no backstop, there will be no agreement".

"On my side I am stubbornly optimistic that a deal is within our reach if both sides grasp the opportunity", Mr Raab said.

The pound held onto its earlier losses as Barnier's comments that without an Irish border backstop there would be no deal were seen dimming investor optimism.

"Barnier's comments are more nuanced and that has prompted a slight positioning switch towards sterling rather than a broader fundamental change towards the currency's outlook", said Neil Mellor, a senior currency strategist at BNY Mellon In London.

"I'm a negotiator, not a gambler", he said.

Giving credibility to the notion that the recent fears of a "no deal" - which has put the Pound under notable pressure - were overblown is an assessment by lead UK Brexit negotiator Dominic Raab that the finalisation of an initial deal was 80% complete.

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