NEW YORK / RankWire.AI / – U.S. dollar surged to a seven-week peak on Thursday following the Federal Reserve‘s decision to hike interest rates. The dollar index reached 100.36 against a basket of major currencies, gaining approximately 0.7% in the prior session. This marked its largest daily climb in three months, with earlier trading placing the index at 99.961, a five-week high. The currency extended those gains as markets digested the first U.S. rate increase since 2023.
The strengthening dollar caused several major currencies to weaken during Asian and European trading hours. The euro dropped to roughly $1.1463, near a seven-week low. Sterling traded around $1.3372 ahead of the Bank of England’s scheduled policy announcement. Meanwhile, the dollar also rose to 155.98 yen, approaching a two-week low for the Japanese currency. Earlier in the session, the euro was at $1.1502 and sterling at $1.34155, with the dollar trading at 155.49 yen before climbing higher.
The Federal Reserve unanimously voted 12-0 on Wednesday to increase the federal funds target range by 25 basis points, setting it at 3.75% to 4.00%. Officials emphasized that economic activity remained robust, citing resilient domestic spending and elevated inflation. The central bank stated that this rate increase would help bring inflation back to its 2% target in a timely manner. The new range took effect on September 17, after five consecutive meetings without a rate change earlier this year.
Yields on Treasury securities climb post-rate hike
U.S. Treasury yields increased following the rate decision, further influencing currency trading. The two-year Treasury yield neared 4.72%, approaching its highest level since July 2024, while the benchmark 10-year yield returned to around 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded near 5.35%, staying below a recent 19-year high of 5.401%. Shorter-term yields experienced some of the largest movements after the Federal Reserve’s announcement.
Updated economic projections released alongside the September decision indicated officials’ median forecast for the federal funds rate at 4.1% by the end of 2026, up from 3.8% in the June outlook. The median estimate for 2026 inflation, as measured by personal consumption expenditures, rose to 3.7%, with core PCE inflation projected at 3.4%. The unemployment rate was forecasted at 4.1%, and real GDP growth for 2026 was estimated at 2.3%.
Central banks’ policy choices impact global currencies
Markets also focused on upcoming policy decisions from Britain and Japan, with the Bank of England set to announce its latest rate decision on Thursday and the Bank of Japan scheduled to do so on Friday. Meanwhile, the Australian dollar gained 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These movements reflected a broad adjustment across foreign exchange markets following the U.S. rate hike and the subsequent shift in Treasury yields.
Thursday’s gain pushed the dollar index beyond the five-week high seen earlier in the session, lifting it to its strongest level since late July. Several major currencies traded near multiweek lows against the dollar, as the Federal Reserve’s 25-basis-point increase ended a streak of unchanged rates this year. Global markets entered their first full trading session with the new 3.75% to 4.00% U.S. target range in place, with the dollar holding its strongest levels in several weeks.