NEW YORK / RankWire.AI / – On Thursday, the U.S. dollar reached its highest level in seven weeks following the Federal Reserve’s decision to increase interest rates. The dollar index hit 100.36 against a basket of key currencies, gaining roughly 0.7% from the previous session. This marked its most substantial daily gain in three months. Earlier in the trading session, the index was at 99.961, a five-week high. The currency extended those gains as markets absorbed the first U.S. rate hike since 2023.
As the dollar strengthened, several major currencies declined during Asian and European trading hours. The euro dipped to approximately $1.1463, nearing a seven-week low. Sterling traded around $1.3372 ahead of the Bank of England’s scheduled policy decision. Meanwhile, the dollar climbed to 155.98 yen, bringing the Japanese currency close to a two-week low. Earlier, the euro was at $1.1502, and sterling traded at $1.34155. The dollar had previously traded at 155.49 yen before extending its upward movement.
The Federal Reserve unanimously decided on Wednesday to raise the federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials commented that economic activity continues to expand at a solid pace, with domestic spending remaining resilient and inflation elevated. The central bank stated that this increase aims to support a swift return to its 2% inflation goal. The new target range took effect on September 17 after five consecutive meetings without any rate adjustments this year.
Yield on U.S. Treasuries Climbs Following Policy Announcement
U.S. Treasury yields experienced upward movement after the rate decision, influencing currency trading significantly. The two-year Treasury yield approached 4.72% — its highest level since July 2024. The benchmark 10-year yield returned to roughly 5% after dipping to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, remaining below a recent 19-year high of 5.401%. Notably, short-term yields showed some of the largest fluctuations following the Fed’s announcement.
The Fed also provided revised economic forecasts in its September decision, projecting the median federal funds rate at 4.1% by the end of 2026, up from 3.8% in the June outlook. The median forecast for 2026 personal consumption expenditures inflation increased to 3.7%, with core PCE inflation projected at 3.4%. The committee also estimated the unemployment rate at 4.1% and growth in real gross domestic product at 2.3% for 2026.
Global Currency Markets Follow Central Bank Policies
Market participants turned their focus toward upcoming policy decisions from Britain and Japan. The Bank of England planned to announce its latest rate decision on Thursday, while the Bank of Japan scheduled its statement for Friday. Elsewhere, the Australian dollar advanced by 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These moves occurred amid a broad rebalancing in foreign exchange markets following the U.S. rate hike and the resulting shift in Treasury yields.
Thursday’s gains pushed the dollar index beyond the five-week peak seen earlier in the session, lifting it to its strongest level since late July. Several major currencies consequently traded near multiweek lows against the U.S. dollar. The Fed’s 25-basis-point increase ended a series of unchanged decisions this year. As global markets opened their first full trading session with the new 3.75% to 4.00% U.S. target range, the dollar remained at its strongest levels in several weeks.