The US dollar may fall 10% this year due to the Federal Reserve's unexpectedly aggressive rate cuts, strategists say

LootboxPhobia · 2026-02-10T15:53:49+00:00

Daiwa Securities strategist Lee Ferridge predicts that the US dollar could decline by 10% this year due to the Federal Reserve potentially adopting a more aggressive rate cut. He believes that if the new chair responds to easing pressures, the dollar will face downward pressure, although it may rebound 2%-3% in the short term due to strong data.

LootboxPhobia

2026-02-10 15:53:49

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Investing.com - According to State Street Corp. strategist Lee Ferridge, the US dollar may decline by 10% this year due to the Federal Reserve potentially cutting interest rates more aggressively than the market currently expects after the new chair takes office.

Although traders currently anticipate the Fed to start cutting rates around June, with at least two rate cuts (25 basis points each) by the end of the year, Ferridge believes there could be a third cut in 2026. This view is partly based on the expectation that Jerome Powell’s successor will face pressure from President Donald Trump to lower borrowing costs.

“Three cuts are possible,” Ferridge said in an interview at the Miami TradeTech FX conference. “Two are a reasonable baseline, but we have to accept that we are entering a period of greater uncertainty in Fed policy.”

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Ferridge explained that deeper rate cuts by the Fed would reduce the cost for foreign investors to hedge their currency risk when investing in the US. As investors increase such hedging activities, it could put downward pressure on the dollar.

The strategist pointed out that concerns over trade tensions and the US fiscal outlook, along with pressure from Trump on the Fed, have already weakened the dollar. Trump has proposed nominating former Fed Governor Kevin Warsh to succeed Powell, whose term ends in May.

Ferridge predicts that in the short term, strong US economic data will reduce expectations for rate cuts, potentially causing the dollar to rebound by 2%-3%. However, he believes dollar selling is “just waiting for Kevin Warsh to take over the Fed and start more sustained rate cuts, narrowing the interest rate gap with other parts of the world.”

According to State Street data, the current hedge ratio of about 58% is significantly lower than the over 78% level before the Fed began raising rates in 2022.

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