January 23, 2018 / 7:58 AM / 6 months ago

Sterling hits a post-Brexit high of $1.40

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote tmsnrt.rs/2hwV9Hv

LONDON, Jan 23 (Reuters) - Sterling briefly popped above $1.40 on Tuesday, extending a rally since the closing days of last year on growing investor optimism about the near-term outlook for the British currency.

Protracted dollar weakness and optimism that Britain will reach a favorable divorce deal with the European Union has powered a 3.5 percent rally in the British pound since the last week of December.

“Sterling is benefiting from the broad dollar weakness story and the recent data has been mildly supportive,” said Thomas Flury, head of FX Strategies, UBS Wealth Management, Chief Investment Office.

On Tuesday, it rose above the $1.40 level in early Asian trading to a post-Brexit high of $1.4005. On a year-to-date basis, it is the best performing major currency, beating even the euro which is up more than 2 percent in that period thanks to a rapidly improving economy.

At 0745 GMT, sterling was trading at $1.3965 against the dollar. Against the euro, it was broadly flat at 87.73 pence .

Data on Friday showed that speculators on the Chicago futures exchanges increased their net long sterling positions - or bets that it will rise - to the highest level in 3-1/2 years, on the view that Brexit talks had so far gone relatively well and that the UK economy was ticking along better than many had expected. (Reporting by Saikat Chatterjee)

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