The dollar rose to an eight-week high against a basket of currencies on Thursday, lifted by expectations that the U.S. Federal Reserve will raise interest rates further and as yields on U.S. Treasurys jumped to multiyear highs.

"The U.S. dollar has advanced further with the selloff in U.S. fixed income leading the way for global bond markets," said Derek Halpenny, head of research for global markets EMEA at MUFG, in a note.

The DXY dollar index rose to 101.315, its highest since late July, as 10-year and 30-year Treasury yields hit their highest since 2007 and 2004, respectively.

U.S. interest-rate expectations have jumped following Wednesday's stronger-than-expected U.S. purchasing managers' data for September. The Fed raised rates in a unanimous decision last week and money markets priced a 75% chance of a back-to-back quarter-point rate hike by the Fed in October, LSEG data showed. Almost four hikes are priced over the next 12 months.

As the dollar climbed, the euro dropped to an eight-week low of $1.1361 and sterling hit a 12-week low of $1.3211, LSEG data showed.

The 10-year Treasury yield rose to a high of 5.148%, while the 30-year yield reached a peak of 5.444%, according to Tradeweb data.

Investors were further encouraged to buy dollars and sell Treasurys after Fed Governor Michael Barr said Wednesday that further rate increases were likely needed to ensure inflation comes down to target in a timely fashion.

The Fed's hawkishness has removed some risk premium from the dollar, said Steve Englander, co-head of FX research at Standard Chartered in a note. With PMI data providing additional evidence of improving economic activity, major impediments to buying the dollar are no longer present, he said.

"This is the first time when the long-term positives have converged without the shadow of short-term negatives," he said.

"The fiscal concerns are real, but they are longer term and not affecting inflation expectations or default risk, so higher real yields add to dollar attractiveness."

U.S. manufacturing and services PMIs both rose more than expected to 57.0 and 58.7, respectively, in September, S&P data showed Wednesday.

Commerzbank currency analyst Thu Lan Nguyen said the Fed's unanimous decision to raise rates has for now dispelled doubts about the Fed's resolve and provided support to the dollar.

However, interest-rate expectations could prove "overly optimistic," particularly given recent pressure from President Trump to reduce interest rates, which creates a potential risk that could weigh on the U.S. currency, she said.

"Against the backdrop of political pressure from the White House and renewed concerns about the Fed's independence, this adjustment is likely to weigh more heavily on the dollar than on the euro."