The Federal Reserve's interest rate decisions play a major role in shaping the U.S. dollar's strength. When the Fed cuts interest rates, it typically leads to a weaker dollar. Here’s why: 1️⃣ Lower Yields, Less Demand – A rate cut reduces returns on U.S. assets, making them less attractive to global investors. This can lead to reduced demand for the dollar, causing its value to decline. 2️⃣ Inflation Expectations – Lower rates often signal the Fed’s intention to stimulate growth, which can lead to higher inflation. A higher inflation outlook can further erode the dollar’s purchasing power. 3️⃣ Capital Flows Shift – Investors may seek higher returns in other currencies, leading to capital outflows from the U.S. and putting downward pressure on the dollar. 4️⃣ Trade & Economic Growth – A weaker dollar can boost U.S. exports by making them cheaper globally, but it can also raise import costs, contributing to inflationary pressures. The market reaction to a Fed rate cut isn’t always straightforward. Other factors like global economic conditions, geopolitical events, and investor sentiment also influence the dollar’s movement.