The pound has risen to its highest level for weeks after the EU’s chief Brexit negotiator said the UK could expect a partnership with Brussels “such as there never has been with any other third country”.
The deal may include an “ambitious free trade agreement” along with cooperation in aviation, security and foreign policy, Michel Barnier added.
Nevertheless, the EU will not permit anything that damages its single market, he said.
“We respect Britain’s red lines scrupulously,” Mr Barnier said during a news conference in Berlin.
“In return, they must respect what we are. Single market means single market. There is no single market a la carte.”
Following his comments, the pound rose to more than $1.30 for the first time in over three weeks.
Sterling jumped by a cent against the dollar, and was also up by a cent against the euro at just over €1.11.
The currency has been under pressure in recent weeks as traders worry about the consequences of a ‘no-deal’ Brexit.
Theresa May has said that while a no-deal outcome would not be a “walk in the park”, nor would it be “the end of the world”.
Mr Barnier’s comments came as Brexit Secretary Dominic Raab admitted the UK and EU might miss October’s deadline for agreeing a divorce deal.
With negotiations still deadlocked on issues such as the Irish border, Mr Raab called for “renewed energy” to push an agreement over the line.
Back in 2016, prior to talks beginning, Mr Barnier set a deadline of October this year for concluding a deal.
This would give the European Council, European Parliament and the UK Parliament time to ratify an agreement before the UK’s formal departure in March 2019, he reasoned.
However, Mr Raab has now joined his Brussels counterpart in appearing to rip up that timescale, meaning a deal seems unlikely before the next European Council summit on 18 October.
Giving evidence to the House of Lords’ EU select committee, Mr Raab said: “It is important as we enter the final phase of the negotiations in the lead up to the October council and the possibility that it may creep beyond that, we want to see some renewed energy.
“We’re bringing the ambition and the substance of our white paper on the future relationship and also, I think, some pragmatism to try and go the extra mile to get the deal that I think is in both sides interests.
“We need that to be matched obviously – it’s a negotiation.”
His comments appear to confirm reports that EU and UK officials are now aiming to finalise divorce terms by the middle of November at the latest, which could prompt an emergency Brussels summit.
Earlier this month, both sides agreed to hold continuous negotiations from now on in a bid to achieve a breakthrough.
Mr Barnier had already taken that opportunity to pave the way for negotiations to extend beyond October’s European Council summit, although “not much later” than the beginning of November.
Mr Raab also told peers a no-deal Brexit could affect arrangements over payments of the UK’s £39bn divorce bill to Brussels.
“I don’t think it could be safely assumed on anyone’s side that the financial settlement as has been agreed by the withdrawal agreement would then just be paid in precisely the same shape or speed or rate if there was no deal,” he said.
Mr Raab’s fellow Brexiteers have argued no money is payable to the EU if there is no final agreement.
Earlier on Wednesday, de facto deputy prime minister David Lidington delivered a warning to both Brussels and Tory Brexiteers.
He urged them to swallow their opposition to Theresa May’s Chequers plan for the future UK-EU relationship or risk no deal.
The Cabinet Office minister told a French business conference: “With exactly seven months until the end of Article 50 process and less than two months ahead of the October European Council, we face the choice between the pragmatic proposals we are discussing now with the European Commission, or no deal.
“The alternative models do not meet the level of ambition or the outcome we all want to see delivered.
“So, we need the EU to engage with us on our positive vision of the future relationship.”