Federal Reserve Governor Stephen Miran talked about how stablecoins could affect monetary policy. He noted that if more people use stablecoins, it might lower the neutral interest rate and could increase the US dollar’s value. The rise of stablecoins might lead to a greater chance of hitting the zero lower bound. Widespread stablecoin use could also encourage more people to use the US dollar and support the case for lower Federal Reserve rates.

US Dollar Performance

Recent data shows how the US dollar is performing against major currencies. It did particularly well against the Japanese Yen, with a rise of 0.53%, highlighting its strength in the currency market. The markets and instruments discussed here are for informational purposes only and come with risks and uncertainties. Readers should do their own research before making financial decisions, as FXStreet is not responsible for any investment losses or mistakes. A notable signal from the Federal Reserve could change expectations for long-term interest rates. The idea that more stablecoin use might lower the neutral rate suggests that the Fed may not have the ability to raise rates in future cycles. This indicates a more cautious approach that we should consider in our forecasts for the coming months. The reasoning is becoming clear as we see recent data. By the third quarter of 2025, the market cap for USD-pegged stablecoins exceeded $400 billion, a huge jump from about $130 billion at the end of 2023. This rise creates a strong and persistent demand for dollars and high-quality liquid assets, which acts as a brake on the financial system.

Economic Outlook and Market Response

This long-term cautious outlook meets a weak short-term economic picture. Gold prices are staying above $4,000 an ounce, and the October 2025 University of Michigan Consumer Sentiment Index dropped to 65.2, the lowest in over a year, raising recession concerns. In this context, any signal of extended low rates carries significant weight for market pricing. For those trading interest rates, this strengthens the view that the Fed’s next move is more likely to be a rate cut rather than an increase. The market is adjusting to this, with CME FedWatch probabilities now showing over a 60% chance of a 25-basis-point rate cut by the March 2026 meeting. We should think about positioning ourselves in SOFR or Fed Funds futures to take advantage of this growing expectation. However, this scenario poses a challenge for currency traders. A dovish Fed usually weakens the dollar, but the rise in stablecoin adoption actually boosts global demand for the currency. We already see this happening, with the dollar remaining strong against the yen despite falling US rate expectations. The clash between monetary policy and strong demand suggests we could see more volatility in major currency pairs. Using trading strategies with options, like buying straddles or strangles on currency pairs such as EUR/USD, might be wise. This approach allows us to benefit from significant price movements in either direction, which seems likely given these opposing influences. Create your live VT Markets account and start trading now.

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