NEW YORK / RankWire.AI / – U.S. dollar reached a seven-week high on Thursday following the Federal Reserve’s decision to increase interest rates for the first time in over three years. The dollar index climbed to 100.36 against its key counterparts, gaining 0.7% overnight. This represented its most significant daily gain in three months. Earlier trading saw the index hit 99.961, a five-week high, before extending its rally as global markets digested the U.S. rate hike.
The strengthening dollar caused the euro to dip to $1.1463, nearing a seven-week low. Meanwhile, the British pound traded around $1.3372 ahead of the Bank of England’s upcoming policy announcement. The dollar also advanced to 155.98 yen, bringing the Japanese currency close to a two-week low. These levels built upon earlier moves during Thursday’s session when the euro was at $1.1502 and sterling at $1.34155. During that period, the dollar was at 155.49 yen.
The Federal Reserve’s decision was approved unanimously, with a 12-0 vote on Wednesday, to raise the federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials highlighted that economic activity continued expanding at a robust rate, while domestic consumption remained resilient. They also pointed out that inflation persisted at elevated levels. The Fed stated that this rate hike would help accelerate the return of inflation to its 2% target. The new rate range became effective on September 17.
Rise in Treasury yields bolsters dollar’s momentum
U.S. Treasury yields responded sharply after the rate increase announcement, especially for shorter durations. The two-year Treasury yield hovered near 4.72%, reaching its highest point since July 2024. Conversely, the 10-year yield returned to approximately 5% after dipping as low as 4.9385% overnight. The 30-year Treasury yield remained around 5.35%, below its recent 19-year high of 5.401%. The rise in short-term yields contributed to the dollar’s strength across major currency markets.
In addition, the Federal Reserve provided updated economic projections alongside its September policy decision. The median forecast indicated the federal funds rate would be 4.1% at the end of 2026, an increase from 3.8% projected in June. The median inflation estimate for personal consumption expenditures rose to 3.7% for 2026 from 3.6%. Core PCE inflation was forecasted at 3.4%, with the unemployment rate expected to be 4.1%. The projections also showed an anticipated real gross domestic product growth of 2.3% for 2026.
Major central banks’ policy meetings remain key
Currency markets also prepared for upcoming monetary policy decisions from Britain and Japan. The Bank of England was scheduled to announce its latest decision later Thursday, while the Bank of Japan’s policy decision was due on Friday. Elsewhere, the Australian dollar appreciated by 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These moves happened amid a broad adjustment across global currencies, driven by the U.S. rate hike and rising short-term Treasury yields.
The dollar’s recent surge extends the rally that began after Wednesday’s rate hike announcement. Updated trading saw the dollar index surpass its previous five-week high and reach its strongest level since late July. Several major currencies also hit multiweek lows against the greenback. The rate hike marked the first increase by the U.S. in 2023, following five consecutive policy meetings without change this year. Thursday’s currency levels reflected the first full global trading session following the announcement of the new target range of 3.75% to 4.00%.