NEW YORK / RankWire.AI / – The U.S. dollar surged to a seven-week high on Thursday after the Federal Reserve implemented an interest rate increase. The dollar index rose to 100.36 against a basket of leading currencies. It had appreciated roughly 0.7% during the previous trading session. This move marked its most significant daily gain in three months. Earlier in the day, the index was at 99.961, representing a five-week high. The currency extended these gains as markets digested the first U.S. rate hike since 2023.
The strengthening dollar caused a decline in several major currencies during Asian and European trading hours. The euro depreciated to approximately $1.1463, close to a seven-week low. Sterling traded around $1.3372 ahead of the upcoming policy announcement from the Bank of England. Meanwhile, the dollar also reached 155.98 yen, bringing the Japanese yen close to a two-week low. Earlier, the euro was at $1.1502, and sterling traded at $1.34155. Prior to extending its climb, the dollar traded at 155.49 yen.
On Wednesday, the Federal Reserve unanimously voted 12-0 to raise the federal funds target range by 25 basis points. The new range now sits between 3.75% and 4.00%. Officials noted that economic activity continued to expand at a robust rate, citing persistent domestic spending and high inflation levels. They stated that the rate hike was intended to support a swift return of inflation to its 2% target. This new target range took effect on September 17 after five consecutive meetings without a rate adjustment this year.
U.S. Treasury yields climb amid rate hike aftermath
U.S. Treasury yields advanced following the rate decision, influencing currency trading significantly. The two-year Treasury yield neared 4.72%, its highest point since July 2024. Meanwhile, the benchmark 10-year yield bounced back to roughly 5% after dipping to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, still below its recent 19-year peak of 5.401%. Notably, shorter-term yields experienced some of the largest shifts after the Fed’s announcement.
In addition, the Federal Reserve released updated economic projections alongside its September decision. Officials projected a median federal funds rate of 4.1% by the end of 2026, up from 3.8% in the June forecasts. The median projection for inflation measured by personal consumption expenditures (PCE) in 2026 increased to 3.7%, with core PCE inflation forecasted at 3.4%. The committee also estimated the unemployment rate at 4.1% and predicted real gross domestic product (GDP) growth of 2.3% for 2026.
Central bank decisions influence global currency movements
Market attention also shifted towards upcoming policy decisions in Britain and Japan, with the Bank of England scheduled to announce its latest rate decision on Thursday. The Bank of Japan has a policy announcement planned for Friday. Elsewhere, the Australian dollar appreciated 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 subsequent shift in Treasury yields.
The dollar index surpassed the five-week peak seen earlier in the session, also reaching its strongest level since late July. Several major currencies traded near multiweek lows against the U.S. dollar. The Federal Reserve’s 25-basis-point increase marked the end of a period with no rate changes this year. Global markets entered their first complete trading session with the new 3.75% to 4.00% U.S. target range in effect, maintaining the dollar’s position at levels not seen in several weeks.