Case for raising US interest rates has strengthened, says Fed chief Janet Yellen
Janet Yellen, the head of the US Federal Reserve, has signalled that US interest rates could rise following a strong performance from the world's largest economy.
Her comments sent the pound surging more than 0.5% to 1.326 against the US dollar.
The FTSE 100 also made gains, hitting session highs before hovering about 0.5% higher, or 35 points to 6852 points.
Ms Yellen delivered the remarks at the Jackson Hole meeting of central bankers in Wyoming on Friday afternoon.
"In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," Ms Yellen said.
"Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee's outlook," she added.
Neil Wilson, a markets analyst at ETX Capital, said Ms Yellen's comments were much more cautious than investors had anticipated.
"Yellen said the case for raising rates has strengthened of late but gave no fresh indication about the key question hanging over markets - will the Fed hike in September? The case for raising rates has been strengthening for years, so this is not telling us much," Mr Wilson said.
Nonetheless, the speech sent the pound rocketing to its strongest level since the Bank of England cut its own benchmark interest rate to record lows of 0.25% earlier this month.
"Whatever Yellen is saying is playing well with the pound," Mr Wilson noted.