NEW YORK / RankWire.AI / – U.S. dollar reached a seven-week high on Thursday following the Federal Reserve’s decision to raise interest rates. The dollar index hit 100.36 against a basket of major currencies. It had increased roughly 0.7% in the previous session. This marked its biggest daily rise in three months. Earlier trading saw the index at 99.961, a five-week high. The currency extended gains as markets digested the first U.S. rate hike since 2023.
The stronger dollar caused declines in several key currencies during Asian and European trading. The euro dropped to about $1.1463, nearing a seven-week low. Sterling traded near $1.3372 ahead of the Bank of England’s upcoming policy announcement. The dollar also surged 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. The dollar had traded at 155.49 yen before its rise extended.
On Wednesday, the Federal Reserve unanimously voted 12-0 to increase the federal funds target range by 25 basis points. The new range is set at 3.75% to 4.00%. Officials stated that economic activity kept expanding at a steady pace. Domestic spending remained resilient, and inflation stayed high. The Fed said the rate hike would help bring inflation back to its 2% goal in a timely manner. This new target range took effect on September 17 after five consecutive meetings with no rate changes this year.
Yields on Treasury securities climb following rate decision
U.S. Treasury yields increased after the rate hike, influencing currency trading. The two-year Treasury yield neared 4.72%, its highest since July 2024. The 10-year yield returned to about 5% after dropping to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, below the recent 19-year high of 5.401%. Yields with shorter durations experienced some of the largest shifts following the Fed’s announcement.
Additionally, the Federal Reserve released updated economic forecasts with its September decision. The median projection for the federal funds rate at the end of 2026 was 4.1%, up from 3.8% in June. The median estimate for 2026 inflation, based on personal consumption expenditures, rose to 3.7%. Core PCE inflation was projected at 3.4%. Unemployment was estimated at 4.1%, with real GDP growth forecasted at 2.3% for 2026.
Central bank decisions influence global currency markets
Markets also focused on upcoming policy decisions in Britain and Japan. The Bank of England planned to announce its latest rate decision on Thursday. The Bank of Japan scheduled its announcement for Friday. Meanwhile, the Australian dollar increased 0.35% to $0.7111. The New Zealand dollar rose 0.2% to $0.5725. These changes came amid a broad shift in foreign exchange markets after the U.S. rate hike and the movement in Treasury yields.
The dollar index moved above the five-week high reached earlier in the session. It also reached its strongest level since late July. Many major currencies traded near multiweek lows against the dollar. The Fed’s 25-basis-point increase ended a series of unchanged decisions this year. Markets worldwide opened their first full session with the new U.S. target range of 3.75% to 4.00%, and the dollar remained at its strongest in weeks.