Sterling whipsawed Tuesday after one media report that the German Chancellor Angela Merkel was considering a 5-year time limit on the Northern Ireland backstop clause within the withdrawal agreement.
The pound, however, quickly gave up its 0.5 percent gains, to trade at $1.3074, after first a German spokesperson dismissed the report and then European Union's top negotiator Michel Barnier confirmed that the withdrawal agreement was not up for negotiation.
"You will have heard me say on a number of occasions - the withdrawal agreement is not going to be reopened."
Barnier said Tuesday that the EU may grant another Brexit delay, but only if U.K. cross-party talks can produce a positive outcome.
Teams representing U.K. Prime Minister Theresa May and main opposition leader Jeremy Corbyn have been talking in recent days in an attempt to broker a Brexit deal that the 650 strong Parliament of lawmakers can pass.
May is traveling to Berlin and Paris on Tuesday for talks with the German Chancellor Angela Merkel and French President Emmanuel Macron in a bid to secure backing for a second delay.
Speaking at the General Affairs Council in Luxembourg on Tuesday, Michel Barnier, highlighted that the addition of a customs union to the agreed future relationship could provide the means for an extension.
"There is one point that needs to be stated quite clearly; that these ambitions, with regard to future relations, which could for example consist of adding to a free trade agreement — for example a customs union — we are willing to improve and amend the political declaration rapidly, within a few hours or days."
With the U.K. officially set to leave the E.U. with no deal this Friday, Barnier warned that any long delay to Brexit would need to be justified by its need.
"The duration of an extension — it has got to be in line with the purpose of any such extension," Barnier told the news conference.
At the EU Council meeting on Wednesday, the remaining 27 EU leaders will decide whether or not to grant the U.K. more time before it leaves the bloc.
Barnier poured cold water on suggestions that the withdrawal deal agreed between May and the rest of Europe's leaders could be reopened but said any declaration on future ties could be changed "within hours or days."