It has been reported that the British government is considering telling Brussels it will stay tied to the Customs Union beyond 2021, partly in an attempt to avoid a hard border in Ireland.
Riechelt said that the risk of a hard brexit remained, though, and that the pound could face downward pressure because the European Union would likely meet the proposal with scepticism.
The agreement could see Britain remain within the EU's common external tariff until a future customs arrangement is ready in a temporary fix created to avoid a massive jolt for business and a hard border in Northern Ireland.
When asked by Business Insider about her comments, a spokesperson for May insisted that the prime minister had been referring to Britain's "future customs arrangements".
At the end of last month, EU's chief Brexit negotiator Michel Barnier said there could be no Brexit withdrawal agreement without the backstop option for the Irish border. They want a deal by October so parliaments can ratify it.
"It is an absolute redline for us that there could not be a hard border on Ireland", Irish Prime Minister Leo Varadkar told reporters in Sofia.
But the proposals have not gone down well with hard Brexiteers who want a "maximum facilitation" customs option.
"We need that to be part of the withdrawal agreement, and if its not then there will be no withdrawal agreement and no transition period".
Under such a scenario, Britain would not be given the adaptation period from next March to the end of 2020, but go straight into being out of the European Union with little detail agreed on how to handle its ties with the bloc.
The pound's jump suggests the currency remains vulnerable to Brexit negotiations that have dominated British politics since a 2016 referendum, even as Britain's economy has shown signs of strengthening.
May has said as it stood in March, the EU's backstop was unacceptable because it would cut off Northern Ireland from the rest of the United Kingdom.
The Brexit War Cabinet session this week focused on ways to resolve the standoff, amid threats from the European Union to halt wider trade negotiations unless the border issue can be guaranteed.
From the other side, from the Irish and the EU, they will be looking closely at this and saying the backstop did not necessarily refer to a time limit it was meant to be a temporary measure and they will be wondering whether aligning with the Customs Union, which would align tariffs for a period of time is enough.
Varadkar said Thursday: "We need to know that it's workable and legally operable, and we've yet to see anything that remotely approaches that".