Image © European Union, 2018 / Source: EC - Audiovisual Service / Photo: Lukasz Kobus

Pound Sterling sank to session lows after the EU's Michel Barnier and Dominic Raab briefed the press as to the progress of the latest round of Brexit negotiations.

Speaking in Brussels, Barnier told the assembled press that not enough has been achieved on the issue of the Irish border and that the UK's latest proposals to solve the complex stalemate concerning the future customs arrangement don't go far enough.

In particular, the EU would not delegate "excises duty collection to a non-member". Markets and political commentators are interpeting Barnier's comments as a rejection of UK Prime Minister Theresa May's Chequers plan which sought to eliminate the need for UK-EU border checks by processing excises on the EU's behalf where necessary.

“The UK wants [the customs element of the backstop] to be UK-wide. No objection in principle. But doubts/risk of integrity to our Customs Union, Common Commercial Policy, regulatory policy, fiscal revenue. UK has promised to come back with concrete proposals,” said Barnier.

The tone is a familiar one from Barnier and suggests the EU is not yet willing to compromise with the UK to try and break the impasse over the Irish border and customs union which is concerning as there is a growing sense the UK is running out of concessions to offer the EU.

"The lack of Brexit progress is becoming more negative for the Pound as the end of the Article 50 period is fast approaching," says Lee Hardman, currency analyst at MUFG in London. "Heightened Brexit uncertainty has lowered the trade-weighted pound to its lowest level since November of last year when the BoE first started raising rates."

Theresa May knows she can't give much more away to the EU withouth risking a rebellion from Brexit supporting members of her party.

Indeed, this suggests to markets that the prospect of a 'no deal' Brexit is a real possibility that they should be wary of and justifies the rise in hedging demand we have seen in the market over recent weeks.

“The UK wants to take back control of its money, law, and borders.

We will respect that.

But the EU also wants to keep control of its money, law, and borders.

The UK should respect that.”@MichelBarnier #Brexit #Article50 https://t.co/4Ez0LstQia — European Commission ???????? (@EU_Commission) July 26, 2018

"No surprise, but EU's Barnier rejects UK's trade offer and $GBP slips to session lows," says Marc Chandler, a prominent financial markets commentator and Wall Street veteran.

The Pound-to-Euro exchange rate squandered a solid advance against the Euro on the developments, yielding from daily highs at 1.1280 to test lows at 1.1248 following the press conference.

The Pound-to-Dollar exchange rate was seen to hit a daily high at 1.3213 to trade at 1.3130 in the wake of the press conference.

"We are not at the end of the road yet. There are major issues to be discussed and questions to be answered," says Barnier; a sentiment foreign exchange markets appear only to well aware of.

The move by the EU’s lead negotiator effectively kills off a key element of the prime minister’s Chequers white paper and had been feared by the British side. The comments mean that the EU has effectively vetoed proposals for a future "customs arrangement" that would allow Britain to strike free trade deals while keeping "frictionless" trade across the channel and Irish border.

The next round of negotiations are scheduled for mid-August.

"Risks of a no deal Brexit - an outcome so costly we find it hard to believe many politicians would choose it - come from a government lacking time and a mandate for any specific Brexit solution. Accidents sometimes happen even if no one would rationally choose them. They are more likely under time pressure. No deal could be such a situation," says Robert Wood, UK Economist at Bank of America Merrill Lynch.

Sam Coates at The Times sums up just how fraught the coming Autumn will be:

"From mid August, the British public will finally discover whether Brexit still means Brexit, whether Theresa May is indeed the Japanese knotweed of prime ministers (clinging on against attempts to remove her), whether hard Brexiteers control Mrs May and whether Labour can muddle through in its current guise, despite internal contradictions and antisemitism allegations. In the latest sign that Britain is returning to the 1970s."