There has been "some progress" towards a Brexit agreement on the Irish border but it remains "50/50" whether a deal will be reached, Sky News understands.
At around midday, the pound hit a day's high of 1.3523 against the dollar after news emerged that Westminster will concede on European Union trade rules for Northern Ireland.
Regulatory alignment could mean both Ireland and Northern Ireland following the same rules governing trade, to ensure that goods can continue to move freely across a "soft" border with no checks.
The pound sterling's key risk today has been U.K. Prime Minister Theresa May's meetings with European Commission President Juncker and Donald Tusk in Brussels, as she presents proposals for the U.K.'s contentious financial settlement with the EU and the complex issue of the Irish border.
Calling May as a tough negotiator in his two-minute briefing, Juncker said he is confident that sufficient progress could be reached before the European Union summit slated for December 15.
But they added: "A deal is sought, but it all turns on Ireland, and if the Irish government gives Barnier the green light".
Prior to May's Brussels trip, expectations were high for breakthroughs on three major Brexit issues, namely the divorce bill, Irish border and citizen's rights.
The UK wants Brussels to rule that sufficient progress has been made on the opening issues in order for talks on trade and a transition period to open in December, after a summit of leaders next week.
May and Juncker made no comment to reporters when they met at the European Union executive's Berlaymont headquarters for a lunch that diplomats and officials hope can seal a breakthrough that would open the way to negotiations on future trade relations. This is possible because both the United Kingdom and Ireland are part of the EU's borderless single market for goods and services as well as the tariff-less customs union.
"I hope we are in a place this evening where Irish people north and south will get reassurance from the wording that is very close to being finalised now". The pro-British Unionist party opposes any special status that could take Northern Ireland further from Britain and closer to the Republic of Ireland.
"We will not accept any form of regulatory divergence which separates Northern Ireland economically or politically from the rest of the U.K.", DUP leader Arlene Foster said.
Varadkar said he was "surprised and disappointed that the British government now appears not to be in a position to conclude what was agreed earlier today".