Case For US Rate Rise Strengthening - Yellen

The head of America’s central bank said the case for an interest rate hike had strengthened but stopped short of indicating any timetable for a move.

Janet Yellen, chair of the US Federal Reserve, said improvements in the economy suggested the world's biggest economy might be nearly ready for an increase.

But the remarks at an annual gathering of central bankers in Jackson Hole, Wyoming, left markets unconvinced that any hike was imminent.

"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.

She (Munich: SOQ.MU - news) added that the Fed still thinks future rate increases should be "gradual."

The pound initially added a cent against the US dollar as traders saw no hint at a timetable for a rate increase in the remarks though the gains later faded. The FTSE 100 index turned higher.

Rob Carnell, chief international economist at ING Bank, said: "Markets are still reluctant to buy into a September rate hike story, at least without more information on the evolution of jobs growth, the pace of economic activity, or higher inflation."

A US interest rate hike would trigger a rise in the US dollar.

The pound is already trading at 31-year lows against the American currency after it slumped following the Brexit vote.

A weak currency is good for Britain's exporters because it makes their goods cheaper abroad.

But it also means foreign goods imported to Britain become more expensive, driving up inflation.