Pictet’s Paolini Sees Fed Cuts Weakening Dollar; DXY May Fall to 95 by 2026
Luca Paolini, strategist at Pictet Asset Management, forecasts a weaker US dollar driven by future Federal Reserve rate cuts as the US economy cools and inflation recedes. Paolini expects a narrowing US interest‑rate differential versus Europe and Japan and projects the Dollar Index (DXY) could fall to about 95 by end‑2026. He argues that firmer growth in Europe and Japan and clearer expectations for easing US policy will reduce the dollar’s valuation. For crypto markets, Paolini’s scenario implies more accommodative liquidity and a softer dollar that could support risk assets including Bitcoin and altcoins. Traders should monitor shifts in interest‑rate differentials, DXY movements, and macro data on US growth and inflation, as these factors could drive cross‑asset flows, liquidity conditions, and hedging strategies. Key names and figures: Luca Paolini (Pictet Asset Management), projected DXY ≈ 95 by 2026. Primary keywords: dollar weakness, Fed rate cuts, Dollar Index, crypto market liquidity, Bitcoin. Secondary keywords: interest‑rate differential, US inflation, cross‑asset flows, hedging.
Bullish
A forecast of Fed rate cuts and a weaker dollar is generally bullish for risk assets, including cryptocurrencies. Paolini’s projection of a narrowing US interest‑rate differential and a DXY decline toward 95 suggests looser global liquidity and increased cross‑asset flows into higher‑yielding or riskier assets. Historically, periods of dollar weakness and easing US policy (e.g., post‑2019 easing and 2020 stimulus) correlated with rallies in Bitcoin and broad crypto risk appetite. In the short term, the market may react positively to clearer expectations of Fed easing and a falling DXY, producing rallies in BTC and altcoins — though these can be volatile and contingent on macro releases (inflation, payrolls). In the medium-to-long term, sustained dollar weakness and lower rates can support higher valuations for risk assets by lowering discount rates and encouraging capital flows into crypto, but risks remain: growth surprises, geopolitical shocks, or a quick return of inflation could reverse the dynamic. Traders should: 1) watch DXY and real interest rates; 2) size positions for higher volatility during regime shifts; 3) use hedges (stablecoins, options) around macro data; and 4) monitor liquidity and on‑chain flows that confirm capital rotation into crypto.