NEW YORK / RankWire.AI / – The U.S. dollar surged to its highest point in seven weeks on Thursday following the Federal Reserve’s decision to hike interest rates for the first time in over three years. The dollar index climbed to 100.36 against its main rivals after increasing 0.7% overnight, marking its most significant daily rise in three months. Earlier trading saw the index reach 99.961, a five-week high, before the dollar extended its gains as global markets absorbed the implications of the U.S. rate decision.
The appreciation of the dollar pushed the euro down to $1.1463, close to its lowest level in seven weeks, while the British pound traded around $1.3372 ahead of the upcoming Bank of England policy announcement. Additionally, the dollar gained to 155.98 yen, bringing the Japanese currency near a two-week low. These levels continued the movement seen earlier Thursday when the euro was at $1.1502 and sterling at $1.34155, with the dollar trading at 155.49 yen at that time.
On Wednesday, the U.S. central bank unanimously voted 12-0 to increase its federal funds target range by 25 basis points, setting the new range at 3.75% to 4.00%. Policymakers noted that economic activity maintained a solid expansion pace, and domestic spending remained strong, while inflation continued to stay elevated. They indicated that the rate hike would help facilitate a more prompt return of inflation to the 2% target. This adjustment took effect on September 17.
Rising Treasury yields bolster the dollar’s gains
U.S. Treasury yields experienced notable shifts following the rate hike decision, especially for shorter maturities. The two-year Treasury yield hovered near 4.72%, its highest since July 2024, while the 10-year yield returned to around 5% after dipping as low as 4.9385% overnight. The 30-year Treasury yield stood near 5.35%, below its recent 19-year high of 5.401%. These elevated short-term yields supported the dollar’s rally across major currency markets.
Alongside the rate decision, the Federal Reserve unveiled updated economic projections, with the median forecast indicating the federal funds rate will end 2026 at 4.1%, an increase from 3.8% projected in June. The median outlook also raised the forecast for personal consumption expenditures inflation to 3.7% for 2026 from 3.6%, with core PCE inflation projected at 3.4%, and the unemployment rate expected to be 4.1%. The officials’ forecast for real gross domestic product growth in 2026 was set at 2.3%.
Global central banks’ policy decisions remain central
Markets are also preparing for upcoming monetary policy announcements from Britain and Japan, with the Bank of England scheduled to reveal its latest decision later Thursday and the Bank of Japan set to do so on Friday. Meanwhile, the Australian dollar appreciated by 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725, reflecting broader currency adjustments following the U.S. rate increase and the rise in short-term Treasury yields observed during the session.
The recent rally of the dollar extends the trend initiated immediately after Wednesday’s rate hike, with updated trading pushing the dollar index beyond its five-week peak and reaching its strongest level since late July. This move caused several major currencies to dip to multiweek lows against the dollar. The rate hike marked the first U.S. interest rate increase since 2023 and followed five consecutive policy meetings without a change earlier this year. Thursday’s exchange rates represent the first full global trading session following the announcement of the new 3.75% to 4.00% target range.