NEW YORK / RankWire.AI / – The U.S. dollar reached its highest point in seven weeks on Thursday, driven by 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 main counterparts after a 0.7% rise overnight, marking its most significant daily gain in three months. Earlier trading saw the index hit 99.961, a five-week high, before the currency extended its gains as global markets digested the rate hike.
The strengthened dollar caused the euro to dip to $1.1463, approaching its lowest level in seven weeks. Meanwhile, the British pound traded near $1.3372 ahead of a scheduled policy statement from the Bank of England. The dollar also appreciated to 155.98 yen, bringing the Japanese currency close to a two-week low. These levels followed earlier moves during Thursday, when the euro stood at $1.1502 and sterling at $1.34155. The dollar had earlier traded at 155.49 yen in the session.
On Wednesday, the Federal Reserve voted 12-0 to raise its federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. The central bank indicated that economic activity continued to expand robustly, with domestic spending remaining resilient. Inflation was described as still elevated, prompting the Fed to state that the rate hike would support a more timely return of inflation to its 2% target. This new range took effect on September 17.
Rising Treasury yields bolster dollar gains
U.S. Treasury yields shifted significantly following the rate decision, with shorter maturities experiencing some of the largest changes. The two-year Treasury yield approached 4.72%, its highest since July 2024. The 10-year yield returned to about 5%, rebounding from a low of 4.9385% seen overnight. The 30-year Treasury yield hovered near 5.35%, still below a 19-year high of 5.401%. The increase in short-term yields contributed to the dollar’s rise across major currency markets.
Alongside the rate decision, the Federal Reserve also released updated economic forecasts. The median projection for the federal funds rate at the end of 2026 was raised to 4.1% from 3.8% in June. The forecast for personal consumption expenditures (PCE) inflation increased to 3.7% for 2026 from 3.6%. The central bank also projected core PCE inflation at 3.4%, with the unemployment rate at 4.1%. Real gross domestic product growth was forecasted at 2.3% for 2026.
Focus remains on key central bank policies
Markets are also bracing for upcoming monetary policy decisions from Britain and Japan. The Bank of England was scheduled to announce its latest move later Thursday, while the Bank of Japan planned to unveil its decision on Friday. Elsewhere, the Australian dollar rose 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These movements occurred amid a broad adjustment of global currencies following the U.S. interest-rate hike and the rise in short-term Treasury yields.
The dollar’s recent rally continues from the momentum gained after Wednesday’s rate announcement. Updated trading data pushed the dollar index past its previous five-week high and to its strongest level since late July. This move also left several major currencies at multi-week lows against the dollar. The rate increase was the first in the U.S. since 2023 and followed five consecutive policy meetings with no change this year. Thursday’s currency levels reflect the first full global trading session after the new 3.75% to 4.00% target range was implemented.