NEW YORK / RankWire.AI / – Amidst ongoing global economic developments, the U.S. dollar achieved a seven-week high on Thursday following the Federal Reserve‘s decision to increase interest rates. The dollar index climbed to 100.36 against a basket of major currencies, reflecting an approximate 0.7% gain from the previous session. This marked the largest single-day jump in three months. Earlier during trading, the index was at 99.961, its highest in five weeks, as markets absorbed the first U.S. rate increase since 2023.
The strengthening dollar put downward pressure on several key currencies during Asian and European trading hours. The euro declined to around $1.1463, nearing a seven-week low. Meanwhile, the British pound traded near $1.3372 ahead of the Bank of England’s upcoming policy announcement. The dollar also rose to 155.98 yen, bringing the Japanese yen close to a two-week low. Earlier, the euro was at $1.1502, and sterling was at $1.34155, with the dollar having traded at 155.49 yen before its rally intensified.
The Federal Reserve unanimously approved a 25 basis point increase on Wednesday, elevating the federal funds target range to 3.75% to 4.00%. Officials highlighted that economic activity remains robust, with domestic spending remaining resilient and inflation staying elevated. The Fed stated that this move aims to facilitate a timely return of inflation to its 2% target. The new range took effect on September 17, after five consecutive meetings without a rate change this year.
Treasury yields climb following the Fed’s rate hike
U.S. Treasury yields increased after the announcement, influencing currency trading significantly. The two-year Treasury yield approached 4.72%, its highest level since July 2024. The benchmark 10-year yield returned to roughly 5% after dipping to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, still below its recent 19-year high of 5.401%. Notably, shorter-term yields experienced some of the most substantial movements following the Federal Reserve’s decision.
The Fed also released updated economic projections alongside its September rate decision. Officials projected the median federal funds rate at 4.1% for the end of 2026, up from 3.8% in the June forecast. Additionally, the median forecast for 2026 personal consumption expenditures inflation increased to 3.7%, with core PCE inflation estimated at 3.4%. The unemployment rate was forecasted at 4.1%, with real gross domestic product growth expected to reach 2.3% in 2026.
Global markets react to central bank policy updates
Currency markets shifted focus toward upcoming policy decisions from Britain and Japan. The Bank of England was scheduled to announce its latest rate decision on Thursday, while the Bank of Japan planned its announcement for Friday. Elsewhere, the Australian dollar gained 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These adjustments reflect a broad response across foreign exchange markets following the U.S. rate hike and the subsequent shift in Treasury yields.
The dollar index surpassed its five-week high during Thursday’s trading, reaching its strongest point since late July. Several major currencies traded near multiweek lows against the U.S. dollar as a result. The Fed’s 25-basis-point hike ended a sequence of unchanged decisions this year. Markets globally entered their first full trading session with the new 3.75% to 4.00% U.S. target range, with the dollar maintaining its strongest levels in several weeks.