NEW YORK / RankWire.AI / – U.S. dollar climbed to its highest point in seven weeks on Thursday after the Federal Reserve raised interest rates. The dollar index reached 100.36 against a basket of leading currencies, representing an approximate 0.7% gain during the previous session. This marked its most substantial single-day increase in three months. Earlier in the day, the index was at 99.961, a five-week high, and extended those gains as markets digested the first U.S. rate hike since 2023.
The strengthening dollar exerted downward pressure on several major currencies in Asian and European trading sessions. The euro dipped to roughly $1.1463, nearing a seven-week low, while sterling traded around $1.3372 ahead of the Bank of England’s upcoming policy announcement. The dollar also advanced to 155.98 yen, approaching a two-week low for the Japanese currency. Earlier, the euro was at $1.1502 and sterling at $1.34155. Prior to its rise, the dollar traded at 155.49 yen.
On Wednesday, the Federal Reserve unanimously voted 12-0 to increase the federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials indicated that economic activity persists at a robust pace, supported by resilient domestic consumption and persistent inflation. The Fed stated that the rate hike would aid in the swift return of inflation to its 2% target. This new range took effect on September 17 following five consecutive meetings without a rate change this year.
Yields on Treasury securities climb following rate increase
U.S. Treasury yields moved upward after the rate decision, influencing currency markets significantly. The two-year Treasury yield neared 4.72%, reaching its highest point since July 2024. The benchmark 10-year yield returned to approximately 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, staying below its recent 19-year high of 5.401%. Short-term yields experienced some of the most notable shifts following the Federal Reserve’s announcement.
Updated economic projections from the Fed, published with the September rate decision, show the median forecast for the federal funds rate at 4.1% by the end of 2026, up from 3.8% in June. The median estimate for 2026 inflation based on personal consumption expenditures rose to 3.7%, with core PCE inflation projected at 3.4%. The unemployment rate was forecasted at 4.1%, and real gross domestic product growth for 2026 was estimated at 2.3%.
Central bank decisions influence international currency trends
Currency markets also focused on upcoming policy announcements from Britain and Japan. The Bank of England was scheduled to reveal its latest rate decision on Thursday, while the Bank of Japan planned its announcement for Friday. Meanwhile, the Australian dollar increased by 0.35% to $0.7111, and the New Zealand dollar rose 0.2% to $0.5725. These movements occurred amidst a broad shift across foreign exchange markets following the U.S. rate hike and the subsequent change in Treasury yields.
Thursday’s gain pushed the dollar index beyond the five-week high recorded earlier in the session and marked its strongest level since late July. Several major currencies subsequently traded near multiweek lows against the U.S. dollar. The Fed’s 25-basis-point increase ended a period of unchanged interest rates this year. As global markets entered their first full trading session with the new 3.75% to 4.00% U.S. target range, the dollar maintained its strongest position in several weeks.