NEW YORK / RankWire.AI / – On Thursday, the U.S. dollar surged to its highest point in seven weeks following the Federal Reserve’s decision to raise interest rates. The dollar index hit 100.36 against a basket of key currencies, representing a gain of approximately 0.7% from the previous session. This marked its most substantial daily rise in three months. Earlier, the index was at 99.961, its five-week peak, before extending gains as markets digested the first U.S. rate hike since 2023.
The appreciation of the dollar caused several major currencies to weaken amid Asian and European trading sessions. The euro declined to roughly $1.1463, approaching a seven-week low. The British pound traded near $1.3372 ahead of the Bank of England’s upcoming policy decision. Meanwhile, the dollar strengthened to 155.98 yen, pushing the Japanese yen close to a two-week low. During earlier trading, the euro stood at $1.1502 and the pound at $1.34155, with the dollar previously at 155.49 yen before further rising.
The Federal Reserve’s unanimous 12-0 vote on Wednesday resulted in a 25 basis point increase to the federal funds target range, now set at 3.75% to 4.00%. Officials highlighted that economic activity remained solid, with domestic spending showing resilience and inflation remaining elevated. The Fed stated that this rate hike aims to facilitate a swift return to its 2% inflation target. The new range took effect on September 17 after five consecutive meetings without a rate change this year.
Yields on Treasury securities climb following rate decision
U.S. Treasury yields increased following the Fed’s rate hike, significantly influencing currency trading. The two-year Treasury yield approached 4.72%, its highest since July 2024. The 10-year yield, a key benchmark, rose back to approximately 5% after falling to 4.9385% overnight. The 30-year Treasury yield traded around 5.35%, still below its recent 19-year high of 5.401%. The most notable moves occurred in shorter-term yields after the Fed’s announcement.
In addition, the Federal Reserve’s updated economic projections from September revealed a median forecast for the federal funds rate at 4.1% by the end of 2026, up from 3.8% in June. The projection for 2026 personal consumption expenditures inflation increased to 3.7%, while core PCE inflation was projected at 3.4%. The committee also estimated the unemployment rate at 4.1% and anticipated real gross domestic product growth of 2.3% for 2026.
Central bank policy decisions influence currency markets worldwide
Market focus shifted to upcoming policy announcements from Britain and Japan. The Bank of England was scheduled to reveal its latest rate decision on Thursday, while the Bank of Japan was set to do so on Friday. Elsewhere, the Australian dollar appreciated by 0.35% to $0.7111, and the New Zealand dollar increased by 0.2% to $0.5725. These movements occurred amid a broad adjustment in foreign exchange markets following the U.S. rate hike and the resulting shifts in Treasury yields.
The dollar’s rally pushed the dollar index beyond its five-week high from earlier in the session, reaching levels not seen since late July. Several major currencies approached multiweek lows against the U.S. dollar, as the Fed’s 25-basis-point increase ended a series of unchanged decisions this year. Global markets started their first full trading day with the new 3.75% to 4.00% U.S. target range in place, and the dollar maintaining its strongest position in several weeks.