I recently observed a quite interesting phenomenon—many people are discussing whether the US dollar will continue to fall, but in fact, this question is much more complex than it appears on the surface.

First, let’s state the conclusion: whether the dollar falls or not, you really can't just look at U.S. policy alone. I’ve noticed many in the market make the same mistake—thinking that cutting interest rates equals a weaker dollar, and raising interest rates equals a stronger dollar. In reality, exchange rates are about the relative attractiveness between countries, not simply about interest rate levels.

In 2022, the US dollar index surged to a high of 114, then gradually declined, now down about 15%. But over the past year or so, the dollar index has been fluctuating between 90 and 100, showing no signs of a one-sided weakening. Why? Because although the U.S. is cutting rates, other major economies like Europe and Japan are also adjusting their central bank policies—they’re all easing, so the dollar’s relative advantage hasn’t significantly diminished.

Currently, the non-farm payroll data remains quite strong, and inflation isn’t coming down as quickly as expected, so the Federal Reserve’s stance has become more cautious. Market expectations for rate cuts have shifted from “rapid easing” to “slow, late, and small,” and some institutions even believe there might be no rate cuts throughout 2026. But here’s a key point— the Fed’s hawkish stance now is data-driven, not the start of a new rate hike cycle. As long as employment and inflation begin to slow, policy could still shift.

From this perspective, the room for the dollar to fall is actually limited. Over the next year, it’s more likely to see high-level oscillations and occasional weakening rather than a continuous plunge. As long as there are financial risks or geopolitical conflicts globally, capital will still flow back into the dollar because it remains the most important safe-haven currency.

There’s also a longer-term trend worth paying attention to—de-dollarization. This is real; many countries are indeed reducing holdings of U.S. Treasuries and increasing gold reserves. But this is a slow process measured in years, and it won’t cause the dollar index to drop from 100 to 90 within 12 months. The dollar’s role in global reserves and settlement systems is still hard to replace in the short term; at most, it will become a “dollar plus multiple currencies coexist” pattern.

What does this imply for our investments? If you’re a short-term trader, you need to closely watch CPI, non-farm payrolls, and FOMC meetings—each announcement can bring volatility opportunities. But if you’re a medium- to long-term investor, rather than betting on dollar appreciation or depreciation, it’s better to diversify risk with gold, other currencies, or crypto assets. When the dollar is oscillating at high levels, such allocations tend to better balance your overall portfolio.

Finally, an interesting observation: the dollar’s exchange rate movement isn’t just about the U.S. itself, but also about the relative performance of its component currencies. For example, Japan just ended its ultra-low interest rate policy, so capital might flow back into the yen, causing USD/JPY to weaken. The Taiwanese dollar is expected to appreciate during the U.S. rate-cut cycle, but not by much. Although the euro is relatively stronger than the dollar, Europe’s economic situation isn’t very good, so the dollar isn’t likely to depreciate significantly. These relative relationships often provide more trading opportunities than simply watching the dollar index.