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Update: EU's Tusk warns no-deal Brexit 'more likely' after new impasse

After weekend talks with the U.K. ended without a breakthrough, European Council President Donald Tusk warned that Britain crashing out of the EU without a divorce deal is increasingly possible.

In a letter inviting EU leaders to a summit this week, Tusk said the Brexit negotiations have "proven to be more complicated than some may have expected," although he urged the EU to remain "hopeful and determined."

"But at the same time, responsible as we are, we must prepare the EU for a no-deal scenario, which is more likely than ever before," Tusk wrote in the letter.

"The fact that we are preparing for a no-deal scenario must not, under any circumstances, lead us away from making every effort to reach the best agreement possible, for all sides … Let us not give up," he added.

In London, Prime Minister Theresa May insisted that a Brexit deal remains "achievable" and urged Brussels not to let the Irish border issue to derail the negotiations.

The U.K. is set to leave the EU in March 2019, but both sides continue to disagree on how to avoid a hard border between Northern Ireland and the Republic of Ireland. May still rejects Brussels' proposal to keep Northern Ireland within the EU customs union and single market as a "backstop" arrangement in the absence of a wider Brexit deal.

Britain's proposal to explore instead a U.K.-wide backstop customs solution received a positive response from the EU, May said. However, Brussels was insisting on keeping its original proposal as a second backstop solution, the prime minister added.

"We cannot let this disagreement derail the prospects of a good deal and leave us with the no-deal outcome that no one wants ... I continue to believe that such a deal is achievable," May told the U.K. House of Commons.

May also insisted that any backstop solution for the Irish border issue should be temporary.

Despite the new impasse, May denied that the U.K. and the EU are "far apart," adding that the shape of a deal "across the vast majority" of a withdrawal agreement is now clear.

As key differences between the U.K. and EU remain, a deal looks "increasingly unlikely" to be achieved at an EU summit this week, according to Fawad Razaqzada, market analyst at Forex.com.

"But judging by sterling's reaction over the past few weeks, the market is nonetheless growing confident that the UK and EU will be able to reach a last-minute deal in the not-too-distant future anyway, as this outcome is best for both parties," Razaqzada added.