NEW YORK / RankWire.AI / – Amid ongoing global currency fluctuations, the U.S. dollar surged to its highest point in seven weeks 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 trading partners after a 0.7% rise overnight, marking its most significant single-day gain in three months. Earlier in the day, the index had touched 99.961, a five-week high, before extending its gains as international markets absorbed the rate decision.
The strengthening dollar caused the euro to decline to $1.1463, nearing its lowest point in seven weeks. The British pound traded around $1.3372 ahead of an upcoming policy statement from the Bank of England. Meanwhile, the dollar strengthened to 155.98 yen, approaching a two-week low for the Japanese currency. These levels reflected moves made earlier Thursday, when the euro was at $1.1502 and sterling at $1.34155. During that session, the dollar traded at 155.49 yen.
On Wednesday, the Federal Reserve unanimously voted 12-0 to raise its federal funds target range by 25 basis points, establishing a new range of 3.75% to 4.00%. Policymakers noted that economic activity continued at a solid pace, with domestic spending demonstrating resilience. They also highlighted that inflation remained high, asserting that the rate hike would support a more timely return to their 2% inflation target. This adjustment took effect on September 17.
Rise in Treasury yields supports the dollar’s rally
U.S. Treasury yields responded sharply after the rate hike, especially in shorter maturities. The two-year Treasury yield hovered near 4.72%, reaching its highest level since July 2024. The 10-year yield, after falling as low as 4.9385% overnight, returned to around 5%. The 30-year Treasury yield was close to 5.35%, below its recent 19-year high of 5.401%. The upward movement in short-term yields contributed to the dollar’s gains across major currencies.
Alongside the rate decision, the Federal Reserve also published updated economic projections. The median forecast now indicates the federal funds rate will be 4.1% at the end of 2026, up from 3.8% in June. Inflation expectations for personal consumption expenditures (PCE) rose slightly, with a forecast of 3.7% for 2026, up from 3.6%. Core PCE inflation was projected at 3.4%, and the unemployment rate was estimated at 4.1%. The projection for real gross domestic product growth in 2026 was 2.3%.
Key central bank decisions attract market focus
Financial markets are also preparing for upcoming monetary policy announcements from Britain and Japan. The Bank of England’s latest decision is scheduled for later Thursday, while the Bank of Japan is expected to release its policy update on Friday. Elsewhere, the Australian dollar strengthened by 0.35% to $0.7111, and the New Zealand dollar rose 0.2% to $0.5725. These movements are part of a broader adjustment seen in global currencies following the U.S. rate increase and the rise in short-term Treasury yields.
The recent climb in the dollar stems from the initial move recorded after Wednesday’s rate hike announcement. Trading updates pushed the dollar index beyond its five-week peak, reaching its strongest level since late July. Several major currencies also hit multi-week lows against the greenback. The rate hike was the first U.S. increase since 2023 and followed five consecutive meetings with no policy change this year. Thursday’s currency levels reflect the first full global trading session since the new target range of 3.75% to 4.00% was announced.