The Federal Reserve's two interest rate cut expectations materialize, and the dollar depreciation cycle what it means for the crypto market

J.P. Morgan has recently downgraded its stance on the US dollar from optimistic to cautious, and anticipates that the Federal Reserve may cut interest rates twice in 2026. What does this shift in outlook reflect? And what impact could it have on the crypto market?

The US dollar is facing structural pressure

J.P. Morgan analysts’ core judgment is that the dollar is experiencing structural headwinds this year. This is not just short-term volatility but a deeper, trend-related issue. The key data supporting this conclusion is that they have slightly raised the US growth forecast for 2026 from 1.9% to 2%, but this growth rate still remains below the US economy’s potential output.

What does this mean? Weak economic growth typically depresses currency value. When US economic growth underperforms expectations, the Federal Reserve is more likely to cut rates to stimulate the economy, and rate cuts often lead to a weaker dollar.

The dual implications of rate cut expectations

J.P. Morgan expects the Federal Reserve may implement two rate cuts in 2026. There are two main factors behind this expectation:

• Economic fundamentals: Growth below potential, possible resurgence of inflation pressures, requiring the Fed to maintain an accommodative stance
• Political factors: The Trump administration has explicitly promoted loose monetary policy, which will reinforce the tendency for the Fed to cut rates

It is worth noting that uncertainty about the next Fed chair still exists, but regardless of who takes the position, political pressure will point toward rate cuts.

Potential impact on the crypto market

A cycle of dollar depreciation generally benefits risk assets. Cryptocurrencies, as a representative of risk assets, tend to benefit from this environment. The main logic includes:

• Ample liquidity: Rate cuts mean increased market liquidity, making it easier for funds to flow into high-risk, high-return assets
• Dollar depreciation expectations: Investors will seek assets outside the dollar to protect purchasing power, with cryptocurrencies being one of the options
• Declining real yields: In a rate-cut environment, traditional bond yields decrease, making cryptocurrencies relatively more attractive

Summary

J.P. Morgan’s expectations of dollar depreciation and rate cuts outline a clearer macro picture for 2026: economic growth below expectations, a policy tilt toward easing, and pressure on the dollar. This environment is generally favorable for cryptocurrencies and other risk assets. However, the ultimate market performance will still depend on specific economic data and policy implementation. The key is to keep a close eye on the Federal Reserve’s actual actions rather than just expectations.