NEW YORK / RankWire.AI / – The U.S. dollar surged to a seven-week peak on Thursday following the Federal Reserve’s decision to hike interest rates for the first time in over three years. The dollar index rose to 100.36 against its main counterparts after climbing 0.7% overnight, marking its largest daily gain in three months. Earlier trading had pushed the index to 99.961, a five-week high, before the currency extended its gains as markets globally processed the rate hike decision.
A stronger dollar resulted in the euro falling to $1.1463, approaching its lowest level in seven weeks. The pound traded around $1.3372 ahead of the upcoming Bank of England policy announcement. Meanwhile, the dollar also appreciated to 155.98 yen, bringing the Japanese yen close to a two-week low. These levels extended the earlier movements on Thursday, when the euro was at $1.1502 and the pound at $1.34155, with the dollar trading at 155.49 yen during that session’s initial phase.
The Federal Reserve unanimously voted 12-0 on Wednesday to raise its federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Policy officials stated that economic activity continued expanding at a solid rate, with resilient domestic spending. They also emphasized that inflation remained high, and that this rate increase would help restore 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 reacted sharply following the rate decision, especially at shorter maturities. The two-year Treasury yield neared 4.72%, reaching its highest point since July 2024. Meanwhile, the 10-year yield returned to approximately 5% after dipping to 4.9385% overnight. The 30-year Treasury yield was near 5.35%, slightly below its recent 19-year high of 5.401%. The rise in short-term yields contributed to the dollar’s appreciation across major currency markets.
Alongside its policy decision, the Federal Reserve published updated economic forecasts. The median projection indicated the federal funds rate would be 4.1% at the end of 2026, up from 3.8% in June. The forecast for personal consumption expenditures inflation increased to 3.7% for 2026 from 3.6%. The core PCE inflation estimate stood at 3.4%, with the unemployment rate projected to be 4.1%. The officials also predicted real gross domestic product growth of 2.3% for 2026.
Major central bank policy decisions remain central to market focus
Markets anticipated upcoming monetary policy announcements from Britain and Japan. The Bank of England was scheduled to reveal its latest decision later Thursday, while the Bank of Japan was set to announce its policy on Friday. Elsewhere, the Australian dollar appreciated 0.35% to $0.7111, and the New Zealand dollar increased 0.2% to $0.5725. These adjustments occurred amid broad global currency shifts following the U.S. rate hike and the rise in short-term Treasury yields.
The recent dollar advance extends the move first observed after Wednesday’s rate increase. Trading updates pushed the dollar index above its five-week peak and to levels not seen since late July. This adjustment left several major currencies at multiweek lows against the dollar. The rate hike marked the first U.S. increase since 2023 and followed five consecutive meetings without change earlier this year. Thursday’s currency levels reflect the first full global trading session following the announcement of the new 3.75% to 4.00% target range.