I have been closely monitoring the trend of the US dollar recently and found that many people still don’t quite understand the exchange rate changes after interest rate cuts. Actually, the USD exchange rate is not as simple as it seems; a Fed rate cut does not necessarily mean the dollar will fall. Multiple factors are involved behind this, including global capital flows, central bank policies compared, and even geopolitical issues.

Regarding USD trend forecasts, my recent observations are as follows. The US dollar index dropped from a high of 114 in 2022 to the current range of 90-100, a decline of nearly 15%. But since 2026, expectations for rate cuts have been fluctuating repeatedly. The market initially anticipated rapid easing, but now it has shifted toward a “slow, late, and limited” rate cut path. Non-farm payroll data remains relatively strong, inflation is still hard to bring down, which has delayed the Fed’s rate cut plans again and again.

The key is to understand that the strength or weakness of the dollar is not solely determined by interest rate policies but is a comprehensive result of interest rate differentials, risk aversion demand, and global capital flows. The policies of major central banks like Europe and Japan are equally important. If other countries also cut rates, the dollar may not necessarily weaken significantly because exchange rates are relative measures of attractiveness. For example, Japan recently ended its ultra-low interest rate policy, which could lead to capital flowing back and pushing up the yen, causing USD/JPY to depreciate instead.

Historically, the USD has experienced several major turning points. During the 2008 financial crisis, capital flowed back into the dollar, causing a sharp appreciation. In 2020, during the pandemic, the US printed a lot of money, which temporarily weakened the dollar, but it later rebounded strongly. The rate hike cycle from 2022 to 2023 pushed the dollar index higher. Now, as we enter a rate-cutting cycle, the dollar has shifted from a one-sided strength to high-level oscillation.

My forecast for the USD trend over the next year is that it is more likely to show high-level oscillation and a slight weakening trend rather than a sharp decline. But this does not mean the dollar will fall continuously. As long as there are financial risks or geopolitical conflicts globally, capital may flow back into the dollar because it remains the world’s most important safe-haven currency.

De-dollarization is a real long-term trend, but it is a slow process measured in years. Central banks are indeed reducing holdings of US Treasuries and increasing gold reserves, but in the short term, the dollar’s core position in global reserves and settlement systems remains difficult to replace.

The impact of USD trends on different assets is also worth noting. A weakening dollar is usually favorable for gold because gold is priced in USD, so a weaker dollar makes gold cheaper to buy. US rate cuts tend to stimulate capital inflows into stocks, especially tech and growth stocks, but if the dollar becomes too weak, foreign investors might shift to other markets. In cryptocurrencies, a weaker dollar means reduced purchasing power, which often has a positive effect on virtual assets as capital seeks assets to hedge inflation.

If you want to trade based on USD exchange rate fluctuations, in the short term, focus on data like CPI, non-farm payrolls, and FOMC meetings that influence rate expectations, and seize the volatility opportunities from small events. In the medium term, use support and resistance levels of the dollar index, combined with differences in central bank policies across countries, to identify swing opportunities over weeks to months. For medium- to long-term investors, diversifying into gold, forex, and other assets to hedge against USD volatility is a good approach. When the dollar is oscillating at high levels or weakening, such allocations can help balance your overall portfolio.

Honestly, instead of passively waiting for exchange rate fluctuations, it’s better to plan ahead and follow the trend. The dollar’s strength or weakness is not just a financial news topic; it directly impacts our investment returns and asset allocation. Now is a good time to understand USD trends and prepare your investment strategies.