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Sterling slides on reports Brexit talks close to collapse

Sterling fell by the most in three weeks after Downing Street was said to have called a Brexit deal "essentially impossible" following a call between German Chancellor Angela Merkel and U.K. Prime Minister Boris Johnson.

Merkel wants Northern Ireland to be a permanent part of the EU customs union, which the U.K. government sees as a "clarifying moment," a Downing Street source has told the BBC and the Financial Times. However, there is skepticism that the description of the call is accurate because the European Union's official position is that Northern Ireland need only stay in the customs union until alternative arrangements are agreed.

Johnson has proposed keeping Northern Ireland in the single market for goods during the transition period and have it join the U.K. customs territory after a transition period.

The two sides are running out of time before an EU summit on Oct. 17-18, which represents the final deadline before an extension is sought to avoid the U.K. crashing out without a deal on Oct. 31.

The two leaders had a phone call Oct. 8. Merkel's spokesman declined to reveal the details of confidential conversations while the the prime minister's spokesman said talks with the EU were "at a crucial point," but not yet over, the BBC reported.

The British pound was 0.5% lower at $1.2225 at about 9 a.m. ET after falling as much as 0.7%. It reached a 34-year low of $1.2063 on Sept. 2.

Johnson has repeatedly insisted that the U.K. will leave the EU by Oct. 31, with or without a deal, despite a law requiring him to ask Brussels by Oct. 19 to extend the Brexit date to Jan. 31, 2020, unless Parliament approves a Brexit deal or agrees to a no-deal departure.

The U.K. government on Oct. 8 updated its temporary tariff regime for a potential no-deal Brexit scenario, saying 88% of total U.K. imports by value would qualify for tariff-free access.