Recently, I noticed that the trend of the US dollar has been a bit interesting. The Federal Reserve began cutting interest rates last year, but so far this year, they haven’t been as proactive. Non-farm payroll data has been consistently strong, and inflation remains “sticky,” so the market’s expectations for rate cuts have been pushed back again and again. Many people originally expected the US dollar to fall, but now the US Dollar Index is actually trading in a range between 90 and 100—so it doesn’t look so simple.

After looking into it, I’ve found that the rise and fall of the US dollar depends on more than just monetary policy. High interest rates do attract capital, but you also have to consider factors like the supply of the US dollar, the trade deficit, global confidence in the United States, and more. Especially in recent years, the calls for “de-dollarization” have been getting louder. Central banks in various countries have been reducing their holdings of US Treasuries and increasing their gold reserves—this does create long-term pressure on the US dollar.

However, there’s a key point here: although de-dollarization is a real trend, it’s a slow process measured in years. In the short term, the US Dollar Index won’t directly drop from 100 to 90. As long as financial risks emerge globally or geopolitical tensions escalate, capital will still flow back into the US dollar, because at its core it remains the most important safe-haven currency.

Historically, the strength of the US dollar has often been tied to major economic events. During the 2008 financial crisis, the US dollar appreciated significantly. In 2020, during the pandemic, it temporarily weakened before rebounding. In the 2022–2023 rate-hiking cycle, the US Dollar Index surged to high levels; now that it has entered a rate-cutting cycle, it has started to consolidate at high levels. This shows that you absolutely can’t judge the US dollar’s movement based solely on whether rates are being raised or cut.

Given the current situation, I believe that over the next year, the US dollar is more likely to trade with high-level volatility and drift toward a weaker consolidation. The Fed’s hawkish stance feels more data-driven: as long as employment, wages, and core inflation begin to slow down, the policy position still has a chance to shift toward easing. 2027 could be the next turning point, but if rate hikes really do happen, they’re more likely to be a modest tightening to address sticky inflation rather than a fast rate-hiking cycle like in 2022–2023.

Also, the impact of the US dollar falling shouldn’t be ignored. A weaker US dollar is usually good for gold, because gold is priced in US dollars—when the US dollar depreciates, the cost of buying gold effectively becomes lower. In the US stock market, rate cuts may attract capital, but if the US dollar becomes too weak, foreign investors might shift toward Europe or emerging markets. When the US dollar weakens, cryptocurrencies also tend to perform relatively well, because capital is looking for assets to hedge against inflation.

For major currencies, the Japanese yen may appreciate due to Japan’s rate hikes, which would cause the USD/JPY exchange rate to move down. The Taiwanese dollar is expected to appreciate, but only slightly. The euro remains relatively strong, but Europe’s economy itself also faces problems. Overall, the US dollar’s relative appeal is diminishing, but in the short term it still appears difficult to be replaced.

If you want to capture trading opportunities from US dollar exchange rate fluctuations, in the short term you can focus on data that influences rate expectations, such as CPI, non-farm employment, and FOMC meetings. For the medium to long term, you can use support and resistance levels of the US Dollar Index along with differences in central bank policies to find swing-trading opportunities. Alternatively, you can simply diversify into assets like gold and currencies to spread and manage US dollar volatility risk—especially when the US dollar is consolidating at high levels or transitioning into a weakening phase, this kind of allocation is more helpful for balancing an overall asset portfolio.