Lately, I’ve been watching the U.S. dollar’s price action and noticed a fairly interesting phenomenon. Since the Federal Reserve began cutting interest rates in 2024, the dollar should, in theory, weaken—but in reality, the situation is more complicated. So far, the U.S. Dollar Index has been choppy, repeatedly trading between 90 and 100. From the 2022 peak of 114, it has fallen quite a lot, but it has not been a steady decline. Many people ask me what exactly is causing the dollar to fall; in fact, behind this are global central bank policy shifts, geopolitical developments, and even the long-term trend of de-dollarization.

Let’s start with the most direct factor. Interest rate cuts do weaken the dollar’s appeal, because when rates are lower, there’s less urgency for capital to pile into dollars. But here’s the key point: exchange rates are not determined by absolute interest rates, but by relative attractiveness. If Europe and Japan are also cutting rates, the dollar may not weaken significantly. So the reasons for the dollar’s decline can’t be explained by only the United States’ policy; it also depends on how other global central banks act relative to the Fed.

I’ve noticed that some data from the past few months has been quite interesting. Non-farm payrolls have remained strong, and inflation has not been able to cool off. As a result, market expectations for Fed rate cuts have been repeatedly pushed back. It’s now widely believed that the Fed is following a “slow, late, and small” path. Even some institutions think that throughout 2026, the policy rate might stay unchanged, and that the policy shift won’t happen until 2027. But this hawkish posture is more data-driven rather than the start of a brand-new rate hike cycle. As long as employment and inflation begin to slow, there’s still a chance that policy could shift toward easing.

There’s also a layer that’s often overlooked: the supply of dollars. Quantitative easing increases dollar liquidity, while quantitative tightening withdraws it. But this is not as simple as “QE devalues and QT appreciates.” Dollar exchange rates are often the combined outcome of three forces: interest rate differentials, demand for safe-haven assets, and global capital flows. Especially when geopolitical conflicts escalate, the dollar can actually rebound because safe-haven buying increases demand.

From a long-term perspective, de-dollarization is indeed a real trend. Central banks in different countries are reducing their share of dollars—whether it’s the euro, the renminbi, or gold. But this is a gradual process measured over years, and it won’t cause the U.S. Dollar Index to drop from 100 straight down to 90 in the short term. The United States remains the world’s largest economy, and the dollar’s role as a reserve currency and settlement currency is difficult to replace in the near term.

So my view is that over the next year, the dollar is more likely to remain in a high-range, slightly weak consolidation pattern rather than collapsing in one direction. As long as new financial risks emerge globally or geopolitical tensions heat up, capital will still flow back into the dollar to seek safety. The reasons behind the dollar’s decline are multifaceted—but precisely because they’re multifaceted, the direction keeps changing.

The impact on different assets is also worth paying attention to. A weaker dollar is beneficial for gold, because gold is priced in dollars—when the dollar depreciates, gold becomes relatively cheaper. For equities, rate cuts can attract capital. However, if the dollar becomes too weak, foreign investors may move into Europe or emerging markets instead. Cryptocurrencies often benefit when the dollar weakens, because investors look for assets that can hedge against inflation.

Looking specifically at the major currency pairs: Japan has ended its ultra-low interest-rate policy, which creates upward pressure on the yen, so the dollar could weaken versus the yen. The Taiwan dollar is expected to appreciate, but with limited upside, because Taiwan has to follow U.S. policy while also taking into account its real estate market and export considerations. The euro is relatively strong, but Europe’s economy also isn’t particularly optimistic—inflation is still high-growth while overall growth is weak—so the dollar is not likely to depreciate sharply.

If you want to seize opportunities from these kinds of fluctuations, for the short term you can focus on data such as CPI, non-farm employment, and FOMC meetings. For the medium term, you can use support and resistance levels of the U.S. Dollar Index together with differences in central bank policies to identify trading ranges. For the long term, diversifying with gold, foreign exchange, and other assets to hedge against dollar volatility is more stable. Especially during phases when the dollar is consolidating at high levels or turning weaker, these allocations typically help balance your overall portfolio more effectively.