NEW YORK / RankWire.AI / – The U.S. dollar climbed to a seven-week high on Thursday after the Federal Reserve raised interest rates for the first time in more than three years. The dollar index hit 100.36 against its major peers after gaining 0.7% overnight. This was its most significant daily increase in three months. Earlier trading pushed the index to 99.961, a five-week high, before the currency extended gains as global markets absorbed the U.S. rate decision.
The stronger dollar caused the euro to drop to $1.1463, nearing its lowest level in seven weeks. Sterling traded around $1.3372 ahead of the upcoming Bank of England policy announcement. Meanwhile, the dollar also strengthened to 155.98 yen, putting the Japanese currency close to a two-week low. These levels followed earlier moves Thursday when the euro was at $1.1502 and sterling at $1.34155. During that session, the dollar had traded at 155.49 yen.
On Wednesday, the U.S. central bank voted 12-0 to raise its federal funds target range by 25 basis points. The new range is now 3.75% to 4.00%. Policymakers highlighted that economic activity continued to grow at a solid pace, with domestic spending remaining resilient. They also noted that inflation stayed elevated. The Fed stated that this rate increase aims to support a more timely return of inflation to its 2% target. The new target range became effective on September 17.
Rise in Treasury Yields Supports the Dollar’s Rise
U.S. Treasury yields experienced notable movements following the interest rate decision, especially in shorter maturities. The two-year Treasury yield was near 4.72%, reaching its highest point since July 2024. The 10-year yield returned to around 5% after dropping as low as 4.9385% overnight. The 30-year Treasury yield remained near 5.35%, below its recent 19-year high of 5.401%. The rise in short-term yields helped push the dollar higher across key currency markets.
Alongside the policy decision, the Federal Reserve published updated economic projections. The median forecast for the federal funds rate at the end of 2026 increased to 4.1% from 3.8% in June. The median estimate for personal consumption expenditures inflation rose to 3.7% for 2026, up from 3.6%. Core PCE inflation was projected at 3.4%, and the unemployment rate was expected to be 4.1%. Additionally, officials forecasted real gross domestic product growth of 2.3% for 2026.
Attention on Central Bank Policy Decisions Worldwide
Markets are also gearing up for upcoming monetary policy decisions in Britain and Japan. The Bank of England was scheduled to announce its latest decision later Thursday. The Bank of Japan was set to release its policy decision on Friday. Elsewhere, the Australian dollar strengthened by 0.35% to $0.7111, while the New Zealand dollar increased by 0.2% to $0.5725. These movements occurred amid broad adjustments across global currencies following the U.S. rate hike and the rise in short-term Treasury yields.
The dollar’s recent rise continues the trend initiated after Wednesday’s rate announcement. Updated trading pushed the dollar index beyond its previous five-week high and to levels not seen since late July. This move also left several major currencies at multiweek lows against the greenback. The rate hike marked the first U.S. increase since 2023, following five consecutive policy meetings without a change this year. Thursday’s currency levels reflect the first complete global trading session since the new 3.75% to 4.00% target range was established.