Dollar rallies on Janet Yellen’s rate talk following Donald Trump slump

The dollar slumped to a seven-week low against the yen late Tuesday after Donald Trump said that the currency was “too strong”

Ms Yellen said that waiting too long to raise rates "could risk a nasty surprise down the road" (Getty)

The US dollar surged against a range of currencies overnight and remained steady in early London trading on Thursday after US Federal Reserve Chairwoman Janet Yellen suggested that interest rates in the US could rise quickly this year.

The buck rallied nearly 2 per cent against Japan’s yen late on Wednesday after Ms Yellen said that the US was close to fulfilling the central bank’s criteria for justifying a rate hike.

“It is fair to say the economy is near maximum employment and inflation is moving toward our goal,” she said, speaking in San Francisco.

Ms Yellen said that “waiting too long to begin moving [the rate higher] could risk a nasty surprise down the road - either too much inflation, financial instability, or both.”

The dollar has endured a wild ride this week, with traders and investors on edge ahead of the inauguration of President-elect Donald Trump on Friday.

It slumped to a seven-week low against the yen late Tuesday after Mr Trump said that the currency was “too strong”.

In an article in the Wall Street Journal, Mr Trump said the strength of the US dollar against China's yuan “is killing us”.

“Yellen's comments were not particularly new, but it helped participants buy back the dollar which had sunk low,” Shin Kadota, senior forex strategist at Barclays, told Reuters.

“But the dollar is making less headway from these levels with Trump's inauguration looming. The Fed is poised to hike rates successively, but monetary policy would also depend to a large degree on Trump's policy specifics.”

Mr Trump has in recent weeks developed a reputation for being able to wipe billions of market value off companies with a single – sometimes seemingly offhand – comment or tweet.

Last week, German carmaker stocks sold off sharply after Mr Trump in a newspaper interview warned he would impose a border tax of 35 per cent on vehicles imported from abroad to the US market.

Earlier this month, close to $25bn was shaved off the value of the S&P 500’s top nine pharmaceutical companies in a matter of minutes after the President-elect accused them of “getting away with murder”.

Additional reporting by agencies