Sterling has extended its rally against the dollar to rise above $1.40 for the first time since the Brexit vote.
Analysts said the pound’s recovery was helped by falls in the dollar and a rethink by some investors about the UK’s economic prospects.
Others said that despite little development in the Brexit talks this month, there was some optimism about the UK’s chances of securing a deal.
The pound rose by 0.3% to $1.4030 on Tuesday afternoon before easing back.
Sterling fell below $1.20 to a 30-year low against the dollar in the months after the UK voted to leave the European Union, contributing to a spike in inflation as imports became more expensive.
But the pound has seen a steady recovery in recent months, which benefits UK tourists visiting the US and could bring down the cost of imports.