NEW YORK / RankWire.AI / – The U.S. dollar surged to a seven-week high on Thursday after the Federal Reserve implemented its first interest rate increase in over three years. The dollar index climbed to 100.36 against major currencies, gaining 0.7% overnight, marking its largest single-day rise in three months. Earlier trading saw the index reach 99.961, a five-week high, before extending gains as markets globally absorbed the rate decision.
This strengthening of the dollar caused the euro to dip to $1.1463, approaching its lowest level in seven weeks. Meanwhile, the British pound traded near $1.3372 ahead of the Bank of England’s upcoming policy statement. The dollar also appreciated to 155.98 yen, nearing a two-week low for the Japanese currency. These levels reflected earlier movements when the euro was at $1.1502, and sterling at $1.34155, with the yen at 155.49 during that period.
On Wednesday, the Federal Reserve unanimously decided to raise its target federal funds rate by 25 basis points, bringing the new range to 3.75% to 4.00%. Policymakers highlighted ongoing economic growth at a solid pace, resilient domestic spending, and persistent inflation. They stated that this rate hike aims to facilitate a quicker return of inflation to its 2% target. The increase took effect on September 17.
Yields on Treasuries Amplify Dollar Gains
U.S. Treasury yields reacted sharply after the rate hike, especially at shorter maturities. The two-year Treasury yield approached 4.72%, reaching its highest point since July 2024. The 10-year yield, which had dipped to 4.9385%, climbed back toward 5%. The 30-year yield remained near 5.35%, below its recent 19-year high of 5.401%. Elevated short-term yields supported the dollar’s strength across major currency markets.
Alongside the policy decision, the Federal Reserve released updated economic projections. The median forecast indicates the federal funds rate will be 4.1% at the end of 2026, up from 3.8% in June. Inflation expectations for personal consumption expenditures rose slightly to 3.7% for 2026, with core PCE at 3.4%, and the unemployment rate projected at 4.1%. The forecast also shows an expected real GDP growth of 2.3% for 2026.
Major Central Bank Moves Continue to Take Center Stage
Market participants also monitored upcoming monetary policy decisions from Britain and Japan. The Bank of England was set to announce its decision later Thursday, while the Bank of Japan’s policy review was scheduled for Friday. Elsewhere, the Australian dollar rose 0.35% to $0.7111, and the New Zealand dollar increased 0.2% to $0.5725. These shifts occurred amid a broad adjustment across global currencies following the U.S. rate increase and the rise in short-term Treasury yields.
The dollar’s rally extends the movement initiated after Wednesday’s rate announcement. Trading updates pushed the dollar index above its five-week peak, reaching levels not seen since late July. Several major currencies also hit multiweek lows against the dollar. This rate hike marked the first U.S. increase since 2023 and follows five consecutive policy meetings without change this year. Thursday’s currency levels reflect the first full global trading session since the new target range of 3.75% to 4.00% was announced.