State Street Bank: 2026 rate cuts may exceed market expectations; the dollar could fall 10% for the year.
PANews reported on February 10 that State Street strategist Lee Ferridge stated on the sidelines of the TradeTech FX conference in Miami that the next Federal Reserve chairman may face pressure from Trump to cut interest rates, leading to a larger-than-expected rate cut in 2026, and the dollar may fall by 10% throughout the year.
The market currently expects the Federal Reserve to resume rate cuts in June and implement at least two more rate cuts of 0.25 percentage points each before the end of the year. However, Ferridge believes the Fed has room for a third rate cut, which would further depress the dollar exchange rate and reduce the cost for foreign investors to hedge their currency risks when investing in the US.
Ferridge points out that if Kevin Warsh, Trump's nominee for former Federal Reserve governor, succeeds Powell as Fed chair, he could meet Trump's demand for lower borrowing costs, thereby narrowing the interest rate differential between the US and other regions. State Street data shows that the current hedging ratio is approximately 58%, far lower than the 78% before the 2022 rate hike.
Although the dollar may rebound by 2%-3% in the short term due to strong economic data, market sentiment toward selling the dollar is awaiting a more sustained interest rate cut policy after the new chairman takes office.
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