Sterling surges after Janet Yellen rate hike remarks

Caitlin Morrison
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UK Pound Rises Above Two Dollars
The pound strengthened against the dollar after Yellen's speech (Source: Getty)

The pound surged against the dollar this afternoon, after Federal Reserve chief Janet Yellen said the case for a rate hike had strengthened over the past few months.

Sterling went up 0.5 per cent to hit a three-week high of $1.3264 following Yellen's speech at Jackson Hole. It has since fallen back, although it's still above the $1.32 mark.

The currency had been strengthening ahead of the speech after data from the Office for National Statistics this morning revealed that the UK economy grew by 0.6 per cent in the second quarter.

Meanwhile, the euro was up 0.35 per cent against the greenback, at $1.1325.

Yellen said the argument in favour of increasing the federal interest rate had been boosted by the "continued solid performance of the labour market and our outlook for economic activity and inflation". She added that the Federal Open Market Committee expects "moderate growth" in gross domestic product, additional strengthening in the labour market, and a two per cent increase in inflation over the next few years.

As a result, she said, the FOMC expects that "gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives".

Lee Ferridge, head of multi-asset strategy at State Street Global Markets North America, said Yellen's speech "did not break much new ground", but added: "A move before year end now looks a distinct possibility should US data continue to improve.”

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