NEW YORK / RankWire.AI / – On Thursday, the U.S. dollar surged to its highest point in seven weeks after the Federal Reserve implemented its first interest rate increase in over three years. The dollar index climbed to 100.36 against key rivals, marking a 0.7% gain overnight and representing its most significant daily rise in three months. Earlier during trading, the index had reached 99.961, a five-week high, before extending gains as global markets absorbed the implications of the U.S. rate decision.
The appreciating dollar pressured the euro down to $1.1463, near its lowest point in seven weeks. Meanwhile, the British pound traded around $1.3372 ahead of the Bank of England’s upcoming policy statement. The dollar also gained strength against the yen, reaching 155.98, which put the Japanese currency close to a two-week low. These levels extended the earlier moves of the day when the euro was at $1.1502 and the pound at $1.34155, with the yen at 155.49 during that initial session phase.
The Federal Reserve unanimously decided on Wednesday to raise its federal funds target range by 25 basis points, bringing it to a new level of 3.75% to 4.00%. Policymakers indicated that economic activity continued to expand at a solid rate, with domestic spending remaining strong. They also acknowledged that inflation remained elevated and stated that the rate hike would help return inflation to its 2% target more promptly. The new target range took effect on September 17.
Rise in Treasury yields supports dollar strength
U.S. Treasury yields experienced notable movement following the rate decision, with the shortest maturities showing some of the largest shifts. The two-year Treasury yield approached 4.72%, reaching its highest point since July 2024. The 10-year yield, after falling as low as 4.9385% overnight, reverted to approximately 5%. The 30-year Treasury yield was near 5.35%, just below the recent 19-year high of 5.401%. The increase in short-term yields contributed to the dollar’s appreciation across major currency markets.
Alongside the rate hike, the Federal Reserve unveiled revised economic projections. The median forecast for the federal funds rate at the end of 2026 was raised to 4.1%, from 3.8% in June. The median estimates for personal consumption expenditures inflation increased to 3.7% for 2026, up from 3.6%. The projections also indicated a core PCE inflation rate of 3.4% and an unemployment rate of 4.1%. Additionally, officials forecasted real GDP growth of 2.3% for 2026.
Global central bank decisions remain under scrutiny
Investors also prepared for upcoming monetary policy announcements in Britain and Japan. The Bank of England was scheduled to announce its latest decision later Thursday, while the Bank of Japan was set to release its policy decision on Friday. Elsewhere, 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 global currencies following the U.S. rate increase and the subsequent rise in short-term Treasury yields.
The dollar’s recent rally extends the trend observed immediately after Wednesday’s rate hike. Updated trading pushed the dollar index past its previous five-week peak to reach its strongest level since late July. This move also left several major currencies at multiweek lows against the greenback. The rate hike marked the first U.S. interest rate increase of 2023 and came after five consecutive policy meetings without a change earlier this year. Thursday’s currency levels reflected the first complete global trading session following the announcement of the new 3.75% to 4.00% target range.