U.S. dollar at seven-week high after rate hike

The dollar index last traded at 100.3, near its strongest since July 31

The dollar clung to a seven-week high on Thursday after the U.S. central bank raised interest rates and flagged more hikes in the coming months, with traders now zeroing in on how central banks in Japan and the UK will respond to inflation pressures.

The dollar rose alongside US Treasury yields after central bank chief Kevin Warsh joined a unanimous decision to hike interest rates, while officials validated a hawkish path and projected one more increase in 2026.

Warsh definitely sounded more hawkish than expected, and the fact that he provided guidance on future hikes surprised the markets, causing them to reprice policy higher, which ultimately pushed the dollar higher, said Carol Kong, currency strategist at Commonwealth Bank of Australia.

Our outlook is for the dollar to appreciate because of our view on the FOMC, she said.

The dollar’s strength pushed the euro to $1.1463, near a seven-week low, while sterling was flat at $1.3372 ahead of the Bank of England’s meeting later on Thursday.

At 155.98 per dollar, the yen hovered near a two-week low as markets awaited the Bank of Japan’s decision on Friday.

The dollar index last traded at 100.3, near its strongest since July 31.

Treasury curves flattened sharply following the central bank’s decision, with yields on interest-rate-sensitive two-year notes holding at their highest level since 2024, at 4.7153%. Yields on benchmark 10-year notes fell just below the key 5% level.

The decision reinforced the Fed’s independence credentials but the Treasury market remains an important drag on confidence, Philip Wee, senior FX strategist at DBS, said in a note.

We are not convinced that the Fed’s hike decision marks the start of a sustained USD uptrend, as it is simply catching up with other major central banks in responding to inflation risks, he said.

Rate futures markets now reflect about a 90% probability of a follow-up quarter-percentage-point central bank rate hike by the end of this year, according to CME Group’s FedWatch Tool.