NEW YORK / RankWire.AI / – The U.S. dollar climbed to a seven-week high on Thursday following the Federal Reserve raising interest rates for the first time in over three years. The dollar index hit 100.36 against its main counterparts after a 0.7% increase overnight. This was its largest daily gain in three months. Earlier in the day, the index was at 99.961, a five-week high, before it extended its rise as global markets absorbed the U.S. rate decision.
The strengthening dollar caused the euro to fall to $1.1463, approaching its lowest point in seven weeks. The pound traded around $1.3372 before the upcoming Bank of England policy statement. The dollar also appreciated to 155.98 yen, putting the Japanese yen near a two-week low. These levels built on earlier moves on Thursday, when the euro was at $1.1502 and the pound at $1.34155. During that session, the dollar was at 155.49 yen.
On Wednesday, the U.S. central bank unanimously voted 12-0 to increase its federal funds target range by 25 basis points. The new range now stands at 3.75% to 4.00%. Policymakers stated economic activity remains robust, with domestic spending continuing to be resilient. Inflation levels are still high, they noted. The rate hike aims to support a quicker return of inflation to the 2% target. The new range has been in effect since September 17.
Treasury yields contribute to dollar strength
U.S. Treasury yields responded sharply after the rate decision, especially in shorter maturities. The two-year Treasury yield was near 4.72%, the highest since July 2024. The 10-year yield returned close to 5%, after dipping to 4.9385% overnight. The 30-year yield was around 5.35%, below its recent 19-year high of 5.401%. Rising short-term yields supported the dollar’s gains across major currencies.
The Fed also released updated economic forecasts with its September decision. The median projection for the federal funds rate in 2026 increased to 4.1% from 3.8% in June. The forecast for personal consumption expenditures inflation rose to 3.7% in 2026 from 3.6%. Core PCE inflation is now projected at 3.4%. The unemployment rate is expected to be 4.1%, and real GDP growth is forecasted at 2.3% for 2026.
Focus remains on key central bank decisions
Markets also anticipate upcoming monetary policy decisions from Britain and Japan. The Bank of England is set to announce its latest move later Thursday. Japan’s policy decision is due on Friday. Meanwhile, the Australian dollar rose 0.35% to $0.7111, and the New Zealand dollar increased 0.2% to $0.5725. These shifts follow a broad adjustment across global currencies after the U.S. rate hike and the rise in short-term Treasury yields.
The recent dollar rally began after Wednesday’s rate increase. Trading updates pushed the dollar index past its five-week peak and to the highest level since late July. Several major currencies hit multiweek lows against the dollar. This rate hike was the first in the U.S. since 2023, ending five policy meetings without changes. Thursday’s levels reflect the first full global trading session after the new 3.75% to 4.00% target range was announced.