State Street warns dollar could fall 10% if Fed cuts more than expected

State Street argues the US dollar could fall to multi-year lows if the Fed cuts rates more aggressively, a scenario that could shift capital toward Bitcoin and risk assets.

Strategists at State Street, one of the world’s largest asset managers, say the US dollar’s worst run in nearly a decade could deepen if the Federal Reserve eases policy more aggressively than markets expect, which is a distinct possibility following a possible leadership change at the central bank. 

Speaking at a conference in Miami, State Street strategist Lee Ferridge said the dollar could decline by as much as 10% this year if financial conditions loosen further. While he described two rate cuts as a “reasonable base case,” he warned that the risks are skewed toward more reductions. “Three is possible,” Ferridge said.

Lower US interest rates tend to reduce the appeal of dollar-denominated assets, especially for foreign investors. As rate differentials narrow, overseas investors are more likely to increase currency hedging, which involves selling dollars to protect returns. That added hedging demand can amplify downward pressure on the currency.

Read more