Recently, the trend of the US dollar has indeed been quite interesting, with expectations of rate cuts repeatedly causing the market to hesitate over whether the dollar will rise or fall. I’ve noticed many people jumping to conclusions based solely on the "rate cut" factor, but it’s actually far more complex than that.

Let’s start with the conclusion: the reasons for the dollar’s appreciation have never been single-factor. After the Federal Reserve began cutting rates in 2024, many thought the dollar would weaken continuously. But what happened? The dollar index, after dropping from its high of 114 in 2022, is still fluctuating between 90 and 100. What does this indicate? It shows that the dollar’s resilience is much stronger than expected.

Why is this the case? The key is that the reasons behind the dollar’s appreciation involve multiple factors. First is the interest rate differential. The US is cutting rates, but central banks in Europe, Japan, and other regions are also changing their policies. At this point, it’s about relative attractiveness. If global rate cuts are happening everywhere, the dollar may not necessarily depreciate; instead, it could remain strong due to changes in relative interest spreads. Since the first half of the year, non-farm payroll data has remained strong, and inflation has not come down quickly. This has shifted market expectations of the Fed from "rapid easing" to a "slower, later, less" rate cut path. This data-driven hawkish stance essentially supports the dollar’s price.

Second is the demand for safe-haven assets. Whenever there’s financial risk or geopolitical tensions escalate globally, capital tends to flow back into the dollar. The dollar remains fundamentally the world’s most important safe-haven currency, and this is unlikely to change in the short term. Therefore, the dollar’s appreciation also includes changes in market risk sentiment.

Looking at the supply side of the dollar, quantitative tightening (QT) is still ongoing, which reduces liquidity and pushes up certain interest rates. While it’s not accurate to say "QT definitely causes the dollar to appreciate," it is indeed one of the factors supporting the dollar.

Another often overlooked point is that the dollar’s appreciation is also related to the performance of other major currencies. For example, if the Bank of Japan ends its ultra-low interest rate policy, the yen might strengthen, causing the USD/JPY to weaken. But for the overall dollar index, if Europe’s economy is weaker and its central bank is slower to cut rates, the dollar might remain resilient due to the relative interest rate advantage. This explains why the same dollar can behave differently against different currencies.

Historically, the dollar’s movements are always the result of policy, economic conditions, and risk events acting together. During the 2008 financial crisis, the dollar surged significantly; during the 2020 pandemic, it temporarily weakened before rebounding strongly. These are not phenomena that can be explained solely by interest rate hikes or cuts.

What about the second half of 2026 into 2027? My view is that the dollar is more likely to fluctuate at high levels or weaken gradually, rather than sharply depreciate. But that doesn’t mean the dollar will keep falling indefinitely. As long as new financial risks or market panic emerge globally, capital may flow back into the dollar.

When discussing the reasons for dollar appreciation, a long-term factor that cannot be ignored is the de-dollarization trend. Central banks are indeed reducing holdings of US Treasuries and increasing gold reserves, but this is a slow process measured in years. The dollar’s central role in global reserves and settlement systems is still hard to replace in the short term. De-dollarization will exert structural pressure on the dollar, but it won’t cause an abrupt collapse in the near future.

From an investment perspective, in the short term, focus on data such as CPI, non-farm payrolls, and FOMC meetings that influence rate expectations. For trading, you can look at support and resistance levels of the dollar index, combined with differences in central bank policies across countries to find opportunities. For medium to long-term strategies, diversifying risk with gold, forex, and other assets is more prudent.

In summary, the reasons for the dollar’s appreciation are multi-dimensional. It’s not just about interest rate policies but also involves global liquidity, risk sentiment, relative interest spreads, and geopolitical factors. Instead of passively waiting for exchange rates to fluctuate, it’s better to understand these dynamics early and align your positions with the trend.