NEW YORK / RankWire.AI / – The U.S. dollar climbed to a seven-week high on Thursday after the Federal Reserve raised interest rates. The dollar index hit 100.36 against a basket of major currencies, having gained roughly 0.7% in the prior session. This move marked its most significant single-day increase in three months. Earlier trading saw the index at 99.961, representing a five-week high. The currency extended its gains as markets absorbed the first U.S. rate hike since 2023.
The stronger dollar caused several key currencies to weaken during Asian and European trading hours. The euro declined to approximately $1.1463, approaching a seven-week low. Sterling traded near $1.3372 prior to the Bank of England’s scheduled policy announcement. Meanwhile, the dollar surged to 155.98 yen, putting the Japanese currency close to a two-week low. Earlier in the session, the euro was at $1.1502 and sterling at $1.34155, with the dollar trading at 155.49 yen before its continued rise.
The Federal Reserve voted 12-0 on Wednesday to increase the federal funds target range by 25 basis points. The new range now sits between 3.75% and 4.00%. Officials indicated that economic activity maintained its solid growth, citing resilient domestic spending and persistent inflation. The central bank stated that the rate hike would help achieve a timely return of inflation to its 2% target. This new range took effect on September 17 after five consecutive meetings without a change in rates this year.
Rise in Treasury yields follows rate hike decision
U.S. Treasury yields moved upward after the rate increase, influencing currency trading significantly. The two-year Treasury yield approached 4.72%, its highest point since July 2024. The benchmark 10-year yield returned to about 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, still below the recent 19-year high of 5.401%. Short-term yields experienced some of the largest fluctuations following the Federal Reserve’s announcement.
The Federal Reserve also provided updated economic forecasts with its September decision. The median projection for the federal funds rate at the end of 2026 was set at 4.1%, up from 3.8% in the June forecasts. The median estimate for 2026 PCE inflation increased to 3.7%, with core PCE inflation projected at 3.4%. The central bank’s officials forecast an unemployment rate of 4.1% and a real GDP growth of 2.3% for 2026.
Global forex markets react to central bank policy updates
Currency traders also turned their attention to upcoming policy decisions from Britain and Japan. The Bank of England was scheduled to announce its latest rate decision on Thursday, while the Bank of Japan planned its policy statement for Friday. Elsewhere, the Australian dollar rose by 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These movements occurred amid a broad adjustment across foreign exchange markets following the U.S. rate hike and the shift in Treasury yields.
Thursday’s gains pushed the dollar index beyond the five-week peak recorded earlier in the day, reaching its strongest level since late July. Several major currencies traded near multi-week lows against the U.S. dollar. The Federal Reserve’s 25-basis-point increase ended a streak of unchanged decisions throughout this year. With the new 3.75% to 4.00% target range in effect, global markets experienced their first full trading session with the dollar holding its strongest levels in several weeks.