In recent reviews of the historical cycles of the US dollar exchange rate, I found some interesting patterns. From the collapse of the Bretton Woods system to today, the dollar has gone through eight distinct periods of ups and downs, and each stage has been driven by different economic policies and global events.

In the 1970s, the dollar entered a depreciation phase mainly because the gold standard failed and the oil crisis hit. Later, Fed Chair Volcker delivered aggressive interest-rate hikes to 20%, which turned the situation around. The US Dollar Index then kept strengthening. But this period of strength only lasted until 1985, when the trend began to reverse. Over the following decade, the United States fell into a situation of twin deficits, and the dollar then entered a long bear market.

During the 1990s dot-com bubble, the dollar once surged to a high of 120 points. After the bubble burst, however, the dollar began a long-term decline. The 2008 financial crisis and the subsequent quantitative easing policies pushed the US Dollar Index down to the low 60s. By 2011, the European debt crisis instead became a tailwind for the dollar, and the US Dollar Index started to rebound.

But this rising cycle was interrupted in 2020 by the pandemic. To stimulate the economy, the United States cut interest rates to 0 and printed money aggressively. The US Dollar Index fell sharply, which also led to serious inflation. Starting in 2022, the Fed began “forceful” interest-rate hikes, pushing dollar interest rates to the highest level in 25 years, while also launching QT (quantitative tightening). Although it succeeded in suppressing inflation, confidence in the dollar was challenged again.

Looking at the outlook for 2025 to 2026, things are becoming more complicated. The logic behind dollar appreciation is no longer as direct as before, so multiple factors need to be considered together. For the euro: if the Fed continues to cut rates while the ECB remains relatively tight, the euro could strengthen, and EUR/USD may continue to rise. The situation with the British pound is similar. If the Bank of England cuts rates more slowly than the Fed, that could provide support for the pound.

For the Chinese yuan, the pressure on the dollar to appreciate depends on how much policy diverges between China and the US. If the Fed continues to maintain high interest rates while China’s economy slows, USD/CNY may face upward pressure, but central bank intervention policies will also play a role. The USD/JPY pair is particularly interesting. Japan’s economy is changing; with wage growth reaching a 32-year high, this may prompt the Bank of Japan to adjust its rate policy, which could limit the room for dollar appreciation.

For the Australian dollar, the data has been strong. GDP growth is above expectations, and the trade surplus is also very strong. The Reserve Bank of Australia maintains a cautious stance, implying that rate cuts are less likely, which supports the Australian dollar and means the pressure on the Australian dollar from dollar appreciation will be relatively limited.

From a trading perspective, in the short term, the dollar’s performance will depend heavily on specific economic data and geopolitical events. If a sudden geopolitical conflict occurs, the dollar may strengthen quickly. But if US economic data starts to weaken, the momentum behind dollar appreciation will decrease. Looking at the medium to long term, a deeper cycle of Fed rate cuts will reduce the dollar’s appeal, and the global trend of de-dollarization is also moving forward gradually. This suggests that the cycle of dollar appreciation may already be over, and the process in the coming years could be a gradual pullback.

A more sensible approach is to trade flexibly amid short-term fluctuations, but do not be overly optimistic about dollar appreciation, because the big trend has already begun to turn. Stay sensitive to economic data and adjust your strategy in a timely manner based on the Fed’s policy signals—this is how you can find opportunities in this complex exchange-rate environment.