Recently, I’ve been looking into the trends of the US dollar and found that quite a few people are still debating whether to go long on the dollar. I’ve organized some thoughts and want to share them.

First, let’s start with the most basic concept. The USD exchange rate is essentially the value ratio of a certain currency against the US dollar. For example, EUR/USD=1.04 means 1 euro can be exchanged for 1.04 dollars. If this number rises, it indicates the euro is appreciating and the dollar is depreciating; conversely, if it falls, the dollar is strengthening. There’s also something called the US Dollar Index, which is weighted and composed of the exchange rates of six major currencies including the euro, yen, and pound, and it reflects the relative strength of the dollar against these currencies.

I’ve noticed an interesting phenomenon. Since the collapse of the Bretton Woods system in the 1970s, the US Dollar Index has actually gone through eight complete cycles. The earliest was in 1971 when Nixon announced the end of the gold standard, leading to a flood of dollars, which was later followed by a decline during the oil crisis. In the 1980s, Fed Chair Volcker aggressively raised interest rates to control inflation, pushing the federal funds rate to 20%, and the dollar index entered a major bull market. Afterwards, it experienced a series of ups and downs through the dot-com bubble, the financial crisis, and the European debt crisis. The recent years are well known—during the COVID-19 pandemic in 2020, the Fed cut rates and printed money aggressively, causing inflation to spiral out of control; in 2022, it started raising rates sharply, which tamed inflation but again challenged confidence in the dollar.

Regarding the current outlook for the dollar, I think it’s necessary to look at different time frames. In the short term, the dollar index is likely to fluctuate within the range of 95-103. If geopolitical conflicts escalate or US economic data exceeds expectations, the dollar could spike quickly; on the other hand, if the Fed continues to cut rates and Europe’s economy improves, the dollar may come under pressure.

Specifically, I’ll analyze each currency pair. The EUR/USD pair generally moves inversely to the dollar index. If the Fed really begins a rate-cutting cycle, the euro is expected to strengthen continuously, possibly challenging 1.09 or even higher. The logic for GBP/USD is similar; if the Bank of England’s rate cuts are slower than the Fed’s, the pound will have an advantage, and it might fluctuate between 1.25 and 1.35, with a chance to break through 1.40.

USD/CNY is more complicated. It depends not only on Fed policy but also on China’s central bank stance. From a technical perspective, the dollar has been bouncing between 7.23 and 7.26, with little momentum for a short-term breakout. USD/JPY is interesting—recently, wages in Japan hit a 32-year high, and the Bank of Japan might accelerate rate hikes, which is positive for the yen. Therefore, USD/JPY is expected to weaken; if it falls below 146.90, it could continue to decline. AUD/USD looks promising as well; Australia’s economic data is solid, and the central bank remains cautious. If the Fed continues to maintain an easing stance, the Australian dollar could find support.

Is now a good time to buy dollars? I think it depends on your investment horizon. For short-term trading over 1-2 quarters, there are opportunities for swing trading—more aggressive traders can buy at support levels and sell at resistance. But from a medium- to long-term perspective, a deepening Fed rate-cut cycle and narrowing US bond yield advantage are highly probable, which could lead capital to flow into emerging markets or Europe. Plus, the global trend of de-dollarization is accelerating, marginally weakening the dollar’s reserve currency status. So, the mid-term strategy should be gradually reducing dollar longs and reallocating into other currencies or commodities.

Overall, by 2026, the dollar’s trajectory will depend more on specific economic data and central bank policies. Flexibility and discipline are key. To profit from exchange rate fluctuations, you need to stay sharp and avoid being misled by short-term volatility.