NEW YORK / RankWire.AI / – The U.S. dollar surged to a seven-week peak on Thursday, driven by the Federal Reserve raising interest rates for the first time in over three years. The dollar index climbed to 100.36 against its key counterparts after gaining 0.7% overnight, marking its most substantial daily rise in three months. Earlier in the trading session, the index hit 99.961, a five-week high, before extending gains as global markets absorbed the U.S. rate decision.
The strengthened dollar pushed the euro down to $1.1463, nearing its lowest level in seven weeks. The pound traded around $1.3372 ahead of an upcoming Bank of England policy announcement. Additionally, the dollar strengthened to 155.98 yen, placing the Japanese currency near a two-week low. These levels followed earlier moves on Thursday when the euro was at $1.1502 and sterling at $1.34155. During that earlier period, the dollar traded at 155.49 yen.
On Wednesday, the U.S. central bank unanimously voted 12-0 to increase its federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials stated that economic activity continued to grow steadily, and domestic spending remained resilient, though inflation persisted at elevated levels. The Fed said that raising the rate would help bring inflation back to its 2% goal more promptly. This new target range took effect on September 17.
Higher Treasury yields support dollar gains
U.S. Treasury yields responded sharply following the rate decision, with shorter-term maturities showing notable increases. The two-year Treasury yield hovered near 4.72% after reaching its highest level since July 2024. Meanwhile, the 10-year yield, which had dipped as low as 4.9385% overnight, climbed back to roughly 5%. The 30-year Treasury yield stayed near 5.35%, below a recent 19-year high of 5.401%. The rise in short-term yields was a key factor supporting the dollar’s appreciation across major currency markets.
Alongside the rate decision, the Federal Reserve published updated economic projections. The median forecast projected the federal funds rate would reach 4.1% by the end of 2026, an increase from 3.8% in June. The projections for personal consumption expenditures inflation rose to 3.7% for 2026 from 3.6%. Core PCE inflation was forecasted at 3.4%, with the unemployment rate expected to be 4.1%. Officials also anticipated real gross domestic product growth of 2.3% for 2026.
Major central bank decisions remain in focus
Markets were also preparing for 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 expected to announce its policy on Friday. Meanwhile, the Australian dollar increased by 0.35% to $0.7111, and the New Zealand dollar went up 0.2% to $0.5725. These movements occurred amid a broad adjustment across global currencies following the U.S. rate hike and the rise in short-term Treasury yields.
The dollar’s recent rally extends the trend observed after Wednesday’s rate increase. Updated trading pushed the dollar index past its previous five-week high, marking its strongest level since late July. This movement also resulted in several major currencies reaching multiweek lows against the greenback. The rate hike was the first U.S. increase since 2023 and followed five consecutive policy meetings without a change this year. Thursday’s currency levels reflected the first full international trading session after the new target range of 3.75% to 4.00% was announced.