It is surely a sign of desperation that money markets moved the Pound higher on comments from Michel Barnier that a deal between the EU and the UK could be achieved by the (new) November deadline. The fact that UK-EU deliberations are in trouble is underlined by the fact that the hard deadline for a deal was pushed back from October to November, in the first place.
Barnier suggested that it would be possible (a huge word) to arrive at a deal within the remaining eight weeks “if we are realistic…”. Nobody would accuse the EU side of being anything but realistic, so rather than words of encouragement, the comment could be seen as a chiding of the UK negotiating stance. Speaking to a business forum in Slovenia, Mr Barnier stated: "I think that if we are realistic we are able to reach an agreement on the first stage of this negotiation which is the Brexit treaty within six or eight weeks."
In any event, markets reacted by pushing Sterling up to 1% gains against the Dollar, but it retreated to close at $1.3042 – currently, Sterling is trading at $1.3051 (Tuesday). The Euro was also lifted against the Dollar on the news by about 0.5% and has continued to strengthen in early trading on Tuesday. Currently, the Euro is trading above the $1.16 mark at $1.1634.
There is undoubtedly a wish on the part of the EU to secure good trading relations with the UK, the second/third largest economy in the EU currently, when (if) it leaves, but this will not be at any cost. Irrespective of the wishes of the UK government and the EU, any deal will need to be acceptable to the ruling Conservative party (in the first place) and gain a majority in parliament. It is far from certain that this will be the case since the Eurosceptic ERG faction of the Tory party is implacably opposed to the “Chequers agreement”. It is threatening to rebel against such a deal with 80 Tory MPs supposedly ready to vote against their own government.
The EU will not tolerate any deal which is seen to run contrary to the four freedoms (free movement of goods, services, capital and individuals) which underpin the union. If the UK leaves the block, it cannot be seen to be able to “cherry pick” the parts of EU membership that it likes whilst rejecting aspects that it determines to be less advantageous. Also, the EU is solidly behind the Irish government in determining that any post Brexit agreement with the UK must prevent the re-establishment of a hard border on the island of Ireland. Anything may be possible, but that doesn’t make I likely.