Recently, I observed an interesting phenomenon: the trend of the US dollar has shifted from the previous one-sided strength to a high-level oscillation. Since Q1 this year, non-farm payroll data has remained relatively strong, and inflation stubbornly persists. Market expectations for the Federal Reserve have changed from expecting rapid easing to a "slow, late, and minimal" rate cut path.

Honestly, the impact on the dollar exchange rate is more complex than expected. Many believe that rate cuts must lead to dollar depreciation, but that's not necessarily true. The strength of the dollar depends on a combination of interest rate differentials, risk aversion demand, and global capital flows, not just a single factor. I’ve noticed that currently, the US dollar index fluctuates between 90 and 100. Although it has fallen about 15% from the high of 114 in 2022, this stalemate has lasted nearly a year, which actually shows the dollar’s resilience.

The key is to understand why the dollar still has support. First, the US’s global influence remains strong, and the dollar is still the most important safe-haven currency. Second, if Europe or Japan’s rate cuts are slower or their policies are more accommodative, the dollar could remain strong due to relative interest rate differentials. That’s why looking at US policy alone isn’t enough; we need to compare the policies of global central banks relative to each other.

From an asset allocation perspective, the dollar’s trend has a significant impact on different markets. When the dollar is consolidating at high levels, assets like gold and cryptocurrencies, which hedge against inflation, often present opportunities. Bitcoin, as “digital gold,” is especially viewed as a store of value when the dollar depreciates or inflation rises. In the stock market, US rate cuts can attract capital, but if the dollar becomes too weak, foreign investors might shift to Europe or emerging markets, which could affect the inflow into US stocks.

I think it’s worth noting that de-dollarization is indeed a long-term trend, but it’s unlikely to cause the dollar index to drop directly from 100 to 90 in the short term. Central banks are indeed reducing holdings of US Treasuries and increasing gold reserves, but the dollar’s core position in global reserves and settlement systems remains hard to replace in the near term. This suggests that over the next year, the dollar is more likely to fluctuate within a high-level range, leaning toward a weaker consolidation, rather than a sharp decline.

For traders, in the short term, paying attention to data like CPI, non-farm payrolls, and FOMC meetings—those that influence interest rate expectations—can help seize opportunities from small fluctuations. If not engaging in intraday trading, one can use support and resistance levels of the dollar index, combined with differences in central bank policies across countries, to identify swing opportunities over weeks or months. For example, USD/JPY: after Japan ended its ultra-low interest rate policy, the yen has been strengthening, so USD/JPY might weaken; the Taiwan dollar is expected to appreciate during the US rate cut cycle, but the magnitude won’t be large; the euro is relatively stronger than the dollar, but the gains are limited.

Long-term, rather than passively waiting for exchange rate fluctuations, it’s better to proactively position. Using gold, forex, and other assets to diversify dollar risk can be more effective, especially when the dollar is consolidating at high levels or weakening. Such allocations tend to help balance the overall portfolio. In today’s market environment, understanding the multiple factors influencing the dollar is far more important than simply betting on its rise or fall.