State Street: "Three Cuts" Could Push Dollar to a 10% Plunge
Predictions that the US dollar could weaken by another 10% have been widely discussed after State Street strategist Lee Ferridge assessed the risk of the Federal Reserve cutting interest rates more deeply than market expectations in 2026. The market is currently pricing in two cuts starting around mid-year, but Ferridge sees the possibility of a third cut which, if realized, could put even greater pressure on the dollar.
According to Ferridge, the key is not just the rate cut, but also its side effects: foreign investors' hedging costs for dollar-denominated assets could decrease when US interest rates also fall. If hedging costs become cheaper, global investors tend to increase hedging (sell USD to hedge), which ultimately adds pressure on the greenback. He also mentioned a period of more uncertain policy during a change in Fed leadership, which could make the market even more sensitive.
On the other hand, not all projections are as aggressive as -10%. Morgan Stanley, for example, believes the dollar could weaken further, reaching around DXY 94 in the second quarter of 2026, but then has the potential to rebound towards the end of the year a "choppy" movement, not a straight decline. Meanwhile, a Reuters survey shows that many strategists remain bearish on the dollar in early 2026, with the Fed's independence and interest rate direction in mind. However, the decline is more of a "moderate" scenario, not necessarily a 10% decline.
The bottom line: a -10% dollar scenario typically only makes sense if there's a combination of (1) a more aggressive Fed cut than expected, (2) increased policy uncertainty/Fed independence, and (3) global investors increasing their USD hedges. If US data remains strong (such as a new jobs release) and the market becomes more hawkish, the dollar could still have a rebound phase before the weakening trend reappears.
Source: Newsmaker.id
