NEW YORK / RankWire.AI / – On Thursday, the U.S. dollar reached a seven-week high following the Federal Reserve’s decision to raise interest rates. The dollar index hit 100.36 against a basket of major currencies, marking a gain of approximately 0.7% from the previous session. This increase represented its largest single-day rise in three months. Earlier trading saw the index at 99.961, which was a five-week high. The currency extended its upward momentum as markets digested the first U.S. rate hike since 2023.
The dollar’s strength caused declines in several major currencies during Asian and European trading hours. The euro dropped to around $1.1463, nearing a seven-week low. Sterling traded near $1.3372 ahead of the Bank of England’s scheduled policy announcement. Additionally, the dollar climbed to 155.98 yen, approaching a two-week low for the Japanese currency. Earlier in the trading session, the euro stood at $1.1502 and sterling at $1.34155. The dollar had previously traded at 155.49 yen before its rise extended further.
The Federal Reserve unanimously voted 12-0 on Wednesday to increase the federal funds target range by 25 basis points, bringing it to 3.75% to 4.00%. Officials stated that economic activity continued to grow at a solid rate, with domestic spending remaining resilient and inflation remaining elevated. The central bank indicated that the rate increase would help facilitate a timely 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.
Yields on Treasury securities climb following rate hike
U.S. Treasury yields moved upward after the rate decision, further influencing currency trading. The two-year Treasury yield neared 4.72%, its highest since July 2024. The benchmark 10-year yield returned to approximately 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded close to 5.35%, remaining below a recent 19-year high of 5.401%. The shorter-term yields experienced some of the most significant movements following the Fed’s announcement.
Updated economic projections from the Fed in September revealed officials’ median forecast for the federal funds rate at 4.1% by the end of 2026, up from 3.8% in June. The median forecast for 2026 inflation measured by personal consumption expenditures (PCE) rose to 3.7%, with core PCE inflation expected at 3.4%. The unemployment rate was projected at 4.1%, and real gross domestic product growth at 2.3% for 2026.
Markets follow central bank policy decisions globally
Market focus shifted to upcoming policy announcements in Britain and Japan, with the Bank of England scheduled to declare its latest rate decision on Thursday and the Bank of Japan set for Friday. Meanwhile, 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 resulting shifts in Treasury yields.
Thursday’s gains propelled the dollar index beyond the five-week high seen earlier in the session, also elevating it to 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 rate increase ended a series of unchanged decisions this year. With the new 3.75% to 4.00% U.S. target range in place, global markets entered their first full trading session holding the dollar at its strongest levels in several weeks.