Strategists at the massive asset manager State Street warn the U.S. dollar could fall up to 10% in 2026 if the Federal Reserve cuts interest rates more aggressively than the two reductions markets currently expect. This potential decline, linked to a possible new Fed chair appointed by President Donald Trump, is seen by analysts as a historical catalyst for increased demand in risk assets like Bitcoin.
Strategists at State Street say the U.S. dollar’s worst run in nearly a decade could deepen if the Federal Reserve eases policy more aggressively than markets expect. Lee Ferridge, a strategist at the firm, stated the currency could decline by as much as 10% this year if financial conditions loosen further.
While describing two rate cuts as a reasonable base case, Ferridge warned that the risks are skewed toward more reductions. “Three is possible,” Ferridge said at a conference in Miami. Lower U.S. interest rates tend to reduce the appeal of dollar-denominated assets for foreign investors, who may then increase currency hedging by selling dollars.
This added hedging demand can amplify downward pressure on the currency. Dollar weakness could also be tied to Kevin Warsh, President Donald Trump’s pick to succeed Jerome Powell as Fed chair, who is widely expected to favor more aggressive cuts. With the central bank’s target rate at 3.50%-3.75%, investors are currently pricing in two rate cuts this year, with the first likely in June, according to CME Group’s FedWatch Tool.
A weaker U.S. dollar has often coincided with stronger demand for risk assets, including Bitcoin. Analysts frequently point to an inverse relationship between the U.S. Dollar Index and Bitcoin, where dollar softness creates a more favorable backdrop for crypto prices. This dynamic has supported Bitcoin during several past dollar downturns by easing financial conditions and boosting global liquidity.
Still, the relationship is far from automatic, and Bitcoin’s short-term performance has not consistently tracked dollar weakness. Profit-taking, investor positioning, and broader risk sentiment can all dampen the impact of currency moves on crypto markets.
