NEW YORK / RankWire.AI / – The U.S. dollar surged to a seven-week high on Thursday after the Federal Reserve implemented its first interest rate increase in over three years. The dollar index hit 100.36 against its key counterparts, representing a 0.7% rise overnight — the largest daily gain in three months. Earlier trading saw the index reach 99.961, a five-week high, before the currency extended its gains as markets worldwide absorbed the implications of the U.S. rate decision.
The strengthening dollar caused the euro to fall to $1.1463, approaching its lowest point in seven weeks. Meanwhile, the pound traded around $1.3372 ahead of the upcoming Bank of England policy statement. The dollar also appreciated against the Japanese yen to 155.98, putting the currency close to a two-week low. These levels reflected earlier movements on Thursday, when the euro was at $1.1502 and the pound at $1.34155. During that period, the dollar traded at 155.49 yen.
The Federal Reserve unanimously voted 12-0 on Wednesday to raise its federal funds target range by 25 basis points, bringing it to 3.75% to 4.00%. Officials indicated that economic activity continued to expand at a solid pace, with domestic spending remaining robust. They also noted that inflation persisted at elevated levels. The central bank stated that this rate hike would help facilitate a more timely return of inflation to its 2% target. The new rate range took effect on September 17.
Bond yields respond sharply, supporting dollar rally
U.S. Treasury yields moved notably after the rate decision, with shorter-term maturities experiencing some of the largest shifts. The two-year Treasury yield approached 4.72%, reaching its highest point since July 2024. The 10-year yield, a key benchmark, returned to around 5% after dipping as low as 4.9385% overnight. The 30-year Treasury yield held near 5.35%, just below its recent 19-year high of 5.401%. The rise in short-term yields supported the dollar’s strength across major currency markets.
Alongside the rate decision, the Federal Reserve also published updated economic projections. The median forecast showed the federal funds rate rising to 4.1% by the end of 2026, up from 3.8% projected in June. The median estimate for personal consumption expenditures inflation increased to 3.7% for 2026, from 3.6% earlier. The forecast for core PCE inflation was set at 3.4%, and the unemployment rate was expected to be 4.1%. Additionally, officials projected real gross domestic product growth of 2.3% in 2026.
Global central banks’ upcoming decisions garner attention
Market participants also prepared for upcoming monetary policy announcements from Britain and Japan. The Bank of England was scheduled to disclose its latest stance later Thursday, while the Bank of Japan was set to announce its decision on Friday. Elsewhere, the Australian dollar increased by 0.35% to $0.7111, and the New Zealand dollar gained 0.2% to $0.5725. These shifts occurred amid a broad movement of adjustments across international currencies following the U.S. rate hike and the subsequent rise in short-term Treasury yields.
The recent advance of the dollar extends the trend initiated after Wednesday’s rate increase. Updated trading pushed the dollar index past its earlier five-week peak, reaching its strongest level since late July. This movement also resulted in several major currencies trading at multiweek lows against the greenback. The rate hike marked the first U.S. increase since 2023 and was the first change after five consecutive policy meetings this year without a shift. Thursday’s currency levels reflect the first full global trading session following the announcement of the new 3.75% to 4.00% target range.