Why Lower Rates Aren’t Weakening the Dollar—and What It Means for You
A deep dive into the markets’ counterintuitive reactions.
“I expected the dollar to rally into the Fed rate cuts… and it kept on going.”
That was me, back in September 2024, watching the Federal Reserve begin its long-awaited pivot. Conventional wisdom often says lower rates should weaken a currency, but I had a hunch the U.S. dollar would hold up. As it turned out, not only did the DXY stay resilient—it kept marching higher.
Today, let’s take a look behind the scenes of these surprising market reactions. We’ll explore why the dollar remains strong despite rate cuts, why the long end of the Treasury market is still rallying, and whether this could be signaling that the dollar’s strength is getting a bit too intense—potentially risking an economic slowdown.
1. A Quick Recap: The Fed’s Rate Cut “Trifecta”
September 2024: The Fed kicked off easing with a 50bp rate cut, larger than many expected.
November & December 2024: Two more 25bp cuts followed, for a total 100bp of cuts in just four months.
Typically, a series of rate cuts would put downward pressure on the dollar because it lowers the yield (and hence the appeal) of U.S. assets. But if you’ve followed my analysis, you know I stayed bullish on the greenback, anticipating that global investors would still seek U.S. stability in an increasingly volatile world. And so far, the dollar has defied the usual script.
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