Federal Reserve rate cut expectations are rising: market signals point to renewed easing, putting fresh pressure on the US dollar.

Market Bets on Fed Rate Cut in October

Markets have recently reignited expectations for a Federal Reserve rate cut. According to the CME FedWatch tool, there is now a 97% probability that the Fed will lower rates by 25 basis points this month. If realized, the federal funds rate range will fall to 3.75%–4.00%. This move is widely viewed as a necessary response to the slowing U.S. economy and a critical signal for investors to rebalance their portfolios.

Rate Cut Will Bring Liquidity Back

A rate cut marks the start of a new monetary easing cycle, driving U.S. Treasury yields lower, weakening the dollar, and lifting asset prices—classic market reactions now occurring in tandem. In this environment, the crypto market often absorbs liquidity first. Historical data shows that Bitcoin gained roughly 7% in the week following the previous rate cut, while Ethereum jumped 18%. ETF flows have also turned positive, with net inflows totaling $62 billion over five consecutive days. This indicates institutional capital remains in the market, awaiting the Fed’s official confirmation of a rate cut.

Fed Officials Remain Divided

While markets have largely priced in a rate cut, Federal Reserve officials remain divided. Some advocate for swift rate reductions to support the weak labor market, while others prefer holding rates steady to prevent inflation from resurging. This policy split puts extra focus on Chairman Jerome Powell’s post-meeting remarks. Any signals of further easing could heighten risk appetite and intensify selling pressure on the dollar.

Trade Progress Offers Dollar Temporary Support

Amid rising macroeconomic uncertainty, U.S. Treasury Secretary Scott Bessent recently announced that the U.S. has reached preliminary agreements with several Asian countries on export controls, agricultural trade, and transportation tariffs. These developments have temporarily eased some geopolitical risks, providing short-term support for the dollar. FX strategist Michael Hopkins commented, “If the Fed signals a clear dovish stance, the dollar could quickly drop below 98; however, deeper trade agreements may limit the downside.”

Easing Cycle Risk Advisory

Markets broadly expect that an official Fed rate cut will deliver short-term gains for U.S. equities and crypto assets. Still, investors should remain vigilant about inflation risks from premature easing. Historically, the initial phase of an easing cycle is marked by heightened volatility, and as capital returns to risk assets, market reactions can be dramatic. For crypto, this could be a moment of renewed liquidity and narrative, but also a test of investor risk tolerance.

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Summary

Each Fed rate decision reverberates through global financial markets. In the current tug-of-war between high inflation and economic slowdown, rate cut expectations signal not only a shift in policy but also the start of renewed capital flows. For investors, the Fed’s rate cut outlook is more than a data point—it’s a contest of confidence and risk.