Above: Arelene Foster of the D.U.P. Image © DUP, Reproduced Under CC Licensing

What rumours giveth, fact taketh.

This is what the British Pound is learning as it zig-zags in response to positive rumours and cold denials.

Pound Sterling rallied on Monday on unsubstantiated newswire reports the U.K. was willing to cede further ground regarding the Irish border in order to secure a Brexit deal. The gains have however proved short-lived with Northern Ireland's most influential politician swiftly responding and warning the idea will not see the light of day.

D.U.P. leader Arlene Foster has told Bloomberg TV the party won’t accept customs or regulatory checks in the Irish Sea as a means of breaking the Brexit deadlock.

The comments appear to squarely directed at reports U.K. Prime Minister Theresa May is preparing a significant new Brexit offer to the European Union in an attempt to open the door to a deal.

Under the plan, which May is likely to put forward later this month, the U.K. would back down on its opposition to new checks on goods moving between the British mainland and Northern Ireland. In exchange, May’s team would need the E.U. to compromise and allow the whole of the U.K. including Northern Ireland to stay in the bloc’s customs regime.

The Pound rose sharply and recorded a fresh 10-day high at 1.1281 against the Euro on the back of the rumours.

However, Foster appears to have jettisoned the plans and the Pound-to-Euro exchange rate has retreated back to 1.1220.

“It’s been very clear all along that has been our one red line: we cannot have either a customs border down the Irish Sea or a regulatory border, because that would make us separate from the rest of the U.K.,” Foster said.

Foster provides a key source of legitimacy to the U.K. government's Irish border arguments as she represents a majority of the Northern Irish population that wishes to see the country remain part of the U.K. And of course, Theresa May's Conservative party relies on the D.U.P.'s votes to pass legislation in parliament, and therefore ultimately retain power.

Brexit negotiations and the government cannot proceed without the backing of the D.U.P.

The Pound is lower across the board and one foreign exchange trader tells us Foster's comments are to blame.

"GBP trading lower on 'the 1 red line'," says Neil Jones, a dealer with Mizuho Bank Ltd in London, referencing the comments. "This is the D.U.P.'s position since the referendum, a firm reiteration & the single most import feature in the whole Brexit negotiations."

Expect Sterling to remain at the whim of headlines, with market attention likely to turn towards Theresa May's Conservative party conference speech due today.

"Investors should remain cautious on the near term outlook for GBP. Indeed, we think that the FX market participants would demand more concrete evidence that the UK and the EU are moving closer to a deal before unwinding some of their shorts in GBP," says Valentin Marinov, an analyst with Crédit Agricole.

The Pound-to-Euro exchange rate peaked at 1.1281 before retracing back to current levels of 1.1269. According to the latest consensus forecasts contained in a special report created by Horizon Currency, the exchange rate is still above where it is expected to be in three and six months from now.