Cancelo joined Bayern in a surprise loan move in the January transfer window and is expected to leave City on a permanent basis in the summer.
However, Bayern are not willing to meet City’s £60 million asking price for the Portugal international, which could open the door for Arsenal to make a move.
Reports have claimed that the Gunners, who conceded defeat to City in the Premier League title race on Saturday with a 1-0 defeat to Nottingham Forest, are exploring the possibility of signing Cancelo to strengthen the right side of Mikel Arteta’s defence.
But the Sunday Mirror reports that City will propose a swap deal to Bayern which would allow them to keep Cancelo in exchange for Joshua Kimmich.
The report claims that Pep Guardiola is adamant that Cancelo will no longer be a part of his squad after causing unrest in the dressing room following his return from the World Cup in December.
‘But in the end all parties are part of the decision.
‘His desire in training is unique. I have the feeling that he is really happy here. We’ll discuss everything else after the end of the season.’
Kimmich, meanwhile, has also been linked with a surprise move away from Bayern this summer with Barcelona, Liverpool and Arsenal all reportedly interested in the versatile Germany international.
However, reports have claimed that Bayern are unwilling to offload Kimmich at the end of the season as they view the 28-year-old as a key part of their plans.
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