NEW YORK / RankWire.AI / – The U.S. dollar reached a seven-week high on Thursday after the Federal Reserve implemented its first interest rate hike in over three years. The dollar index climbed to 100.36 against major currencies, gaining 0.7% overnight and marking its largest single-day increase in three months. Earlier trading saw the index reach 99.961, a five-week high, before extending gains as global markets absorbed the Fed’s rate decision.
The strengthening dollar pushed the euro down to $1.1463, close to its lowest level in seven weeks. Meanwhile, the pound traded around $1.3372 ahead of a Bank of England policy announcement. The dollar also appreciated to 155.98 yen, pushing the Japanese currency near a two-week low. These levels reflected earlier movements Thursday, when the euro was at $1.1502 and the pound at $1.34155. During that session, the dollar traded at 155.49 yen.
On Wednesday, the U.S. central bank unanimously voted 12-0 to raise its federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Policymakers indicated that economic activity continues to grow at a solid pace, with domestic spending remaining robust. They also noted that inflation stays elevated, and the rate hike aims to accelerate the return to the Fed’s 2% inflation target. The new rate range has been in effect since September 17.
Rise in Treasury yields supports dollar appreciation
U.S. Treasury yields reacted sharply to the rate hike, with the shorter maturities experiencing some of the most notable shifts. The two-year Treasury yield approached 4.72%, reaching its highest point since July 2024. The benchmark 10-year yield recovered to around 5% after falling to 4.9385% overnight. The 30-year Treasury yield was near 5.35%, below the 19-year high of 5.401% recorded recently. The increase in short-term yields supported the dollar’s rally across major currency markets.
Alongside the rate decision, the Federal Reserve published updated economic forecasts. The median projection indicates that the federal funds rate will be 4.1% by the end of 2026, up from 3.8% in June. The median forecast for personal consumption expenditures inflation increased to 3.7% in 2026 from 3.6%. The projections also included a core PCE inflation rate of 3.4%, an unemployment rate of 4.1%, and a predicted real gross domestic product growth of 2.3% for 2026.
Global central bank decisions keep markets in focus
Markets also geared up for upcoming monetary policy decisions from the Bank of England and the Bank of Japan. The Bank of England was scheduled to announce its latest stance later Thursday, while the Bank of Japan’s decision was expected on Friday. Elsewhere, the Australian dollar gained 0.35% to $0.7111, and the New Zealand dollar increased 0.2% to $0.5725. These movements occurred amid a broad adjustment in global currencies following the U.S. rate hike and the rise in short-term Treasury yields.
The dollar’s latest upward move follows its initial surge after Wednesday’s rate increase. Updated trading pushed the dollar index beyond its previous five-week high, reaching its strongest level since late July. The move caused many major currencies to reach multi-week lows against the dollar. This rate increase was the first in the U.S. since 2023 and came after five consecutive policy meetings without change this year. Thursday’s exchange rates reflect the first full global trading session since the new target range of 3.75% to 4.00% was announced.