NEW YORK / RankWire.AI / – The U.S. dollar reached a seven-week high on Thursday after the Federal Reserve boosted interest rates. The dollar index climbed to 100.36 against a basket of major currencies, marking an increase of about 0.7% from the previous session. This represented its largest single-day gain in three months. Earlier in the day, the index was at 99.961, a five-week high. The currency extended its gains as markets processed the Fed’s first rate increase since 2023.
The strengthening dollar caused several prominent currencies to decline during Asian and European trading hours. The euro dipped to approximately $1.1463, nearing a seven-week low. The British pound traded around $1.3372 ahead of the Bank of England’s upcoming policy announcement. The dollar also increased to 155.98 yen, approaching a two-week low for the Japanese currency. Earlier in the session, the euro was at $1.1502 and sterling at $1.34155. Before the rise, the dollar traded at 155.49 yen.
On Wednesday, the Federal Reserve voted 12-0 to raise the federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials stated that economic activity continued to expand at a solid pace, with domestic spending remaining resilient and inflation staying elevated. The Fed explained that the rate hike aims to help restore inflation to its 2% target in a timely manner. This new range took effect on September 17 after five consecutive meetings without a rate change this year.
Yields on U.S. Treasury securities increase following rate decision
U.S. Treasury yields moved upward after the rate announcement, influencing currency trading significantly. The two-year Treasury yield approached 4.72%, reaching its highest level since July 2024. Meanwhile, the benchmark 10-year yield rose back to around 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, remaining below its recent 19-year high of 5.401%. Shorter-term yields experienced some of the largest swings following the Fed’s rate increase.
Additionally, the Federal Reserve published updated economic projections with its September decision. The median forecast for the federal funds rate by the end of 2026 is now 4.1%, up from 3.8% in the June projections. The median estimate for 2026 personal consumption expenditures inflation increased to 3.7%, with core PCE inflation projected at 3.4%. The officials also projected the unemployment rate at 4.1% and anticipated real gross domestic product growth of 2.3% for 2026.
Central bank decisions influence global currency movements
Markets worldwide focused on upcoming policy announcements from Britain and Japan. The Bank of England planned to reveal its latest rate decision on Thursday, while the Bank of Japan scheduled its announcement for Friday. Elsewhere, the Australian dollar increased by 0.35% to $0.7111, and the New Zealand dollar rose 0.2% to $0.5725. These shifts occurred amid a broad adjustment in foreign exchange markets following the U.S. rate hike and the resulting shift in Treasury yields.
Thursday’s gains pushed the dollar index above the five-week high recorded earlier in the session, reaching its strongest level since late July. Several major currencies traded close to multiweek lows against the U.S. dollar. The Fed’s 25-basis-point increase ended a string of unchanged decisions this year. As global markets opened their first full trading day with the new 3.75% to 4.00% U.S. target range in effect, the dollar maintained its strongest levels in several weeks.