The U.S. dollar eased slightly on Thursday after reaching a seven-week high following the Federal Reserve’s decision to raise interest rates and signal the possibility of further tightening.
The Federal Reserve increased its benchmark interest-rate range by 25 basis points to 3.75%–4.00%, with policymakers maintaining their focus on bringing inflation back toward the central bank’s 2% target. The decision was unanimous.
The Fed’s latest projections point to a median federal funds rate of 4.1% at the end of 2026, compared with 3.8% in its June projections, indicating that policymakers expect monetary policy to remain tighter than previously anticipated.
The dollar initially strengthened sharply following the decision, with the Dollar Index reaching 100.36, its strongest level since July 31. It later eased to around 100.20 as declining oil prices reduced some of the support for the U.S. currency.
The euro recovered slightly to around $1.1475 after touching a seven-week low near $1.1456, while the Japanese yen strengthened, with the dollar trading near 155.65 yen.
Sterling also came under pressure after the Bank of England kept interest rates unchanged, while warning that continued inflationary pressures and developments in the Middle East could influence future policy decisions.
Attention is now turning to the Bank of Japan, which is expected to raise interest rates on Friday to their highest level in around 31 years. Investors will closely monitor comments from Governor Kazuo Ueda for indications about the timing and pace of any further tightening.
The moves highlight the growing importance of central-bank policy divergence in global currency markets, with traders continuing to adjust expectations for interest rates in the United States, United Kingdom and Japan.
