Further Fed rate cuts could weaken the dollar…a tailwind for Bitcoin

Analysts say that if the U.S. Federal Reserve (Fed) moves to deliver additional rate cuts beyond what the market expects, the dollar could fall sharply—creating a more supportive backdrop for risk assets such as Bitcoin.

According to Cointelegraph on the 11th (local time), State Street, one of the world’s largest asset managers, noted that with the dollar showing its weakest performance in years, a faster pace of monetary easing could amplify the decline.

Lee Ferridge, Global Macro Strategist at State Street, said at a conference in Miami that “two rate cuts this year are a reasonable base case,” while adding that “the risks are skewed toward more cuts.” He added, “If financial conditions ease further, the dollar could fall as much as 10% this year,” noting that “three cuts are also a plausible scenario.”

When rates fall, the appeal of dollar-denominated assets diminishes. In particular, overseas investors tend to increase the share of currency hedges as interest-rate differentials narrow, which could translate into additional selling pressure on the dollar.

The prospect of a weaker dollar is also intertwined with potential leadership changes at the Fed. Observers say that if Kevin Warsh—named by U.S. President Donald Trump as a candidate for the next Fed chair—is confirmed, a more aggressive rate-cutting stance could emerge.

The Fed’s current target range for the policy rate is 3.50% to 3.75%. According to CME Group’s FedWatch, markets are pricing in two cuts this year, with the first seen as most likely to come at the June Federal Open Market Committee (FOMC) meeting.

A softer dollar could also be positive for crypto markets. Cointelegraph reported that “a weaker dollar has tended to spur demand for risk assets such as Bitcoin by easing financial conditions and expanding global liquidity.”

However, the relationship is not always consistent. Cointelegraph noted that “in some phases, Bitcoin prices have fallen alongside a weaker dollar,” explaining that “profit-taking, investor positioning, overall risk appetite and uncertainty around monetary policy can influence short-term moves.”