I have been closely watching the US dollar trend recently and noticed that many people are still somewhat confused about the dollar's outlook for 2026. In fact, the expectations for rate cuts have been fluctuating—initially markets thought the US would loosen monetary policy quickly, but now it has shifted to a "slow, late, and limited" rate cut path, with some institutions even believing there might be no rate cuts at all this year.

First, let's discuss the basic logic behind the USD exchange rate. Simply put, it’s the exchange ratio between the US dollar and other currencies, for example, EUR/USD=1.04 means 1.04 dollars can exchange for 1 euro. But what does this number reflect behind the scenes? It’s not just about US unilateral policy; it’s a comparison of "relative attractiveness." If other countries also cut rates simultaneously, the dollar might not weaken significantly because exchange rates depend on relative interest rate differentials.

Currently, the US dollar index fluctuates between 90 and 100. It has fallen about 15% from its high of 114 in 2022, but over the past year or so, it has been sideways, with no clear direction. I’ve identified four main factors influencing the exchange rate: first, US interest rate policy, which is the most direct driver; second, the supply of US dollars, i.e., QE and QT; third, the trade deficit, as the US has long imported more than it exports; and fourth, the US’s global influence.

Regarding the future trend of the dollar, the key is that the current hawkish stance of the Federal Reserve is actually data-driven, not the start of a new rate hike cycle. As long as employment, wages, and inflation begin to slow, policy could return to neutral or even easing. Therefore, I believe the dollar is more likely to fluctuate at high levels and weaken gradually over the next year, rather than experiencing a sharp, one-way decline.

However, it’s important to note that 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. At the same time, the movement of the dollar index also depends on the relative performance of its component currencies. If Europe cuts rates more slowly or Japan maintains a more accommodative policy, the dollar could stay resilient due to interest rate differentials.

Regarding de-dollarization, this is indeed a long-term trend that exists in reality, but it is a slow process measured in years. It’s unlikely that within the next 12 months, the dollar index will drop directly from 100 to 90. Central banks are gradually 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.

Understanding how the dollar’s movements affect different assets is also very important. A weaker dollar generally benefits gold because gold is priced in dollars, so a dollar decline makes gold cheaper in dollar terms. A weaker dollar also encourages capital inflows into stocks, especially tech and growth stocks. Cryptocurrencies tend to benefit from dollar weakness as well, as investors seek assets to hedge against inflation.

As for the USD/TWD future trend, my view is that Taiwan’s interest rates tend to follow the dollar, but Taiwan has its own issues. For example, if Taiwan wants to control housing prices, it can’t just cut rates recklessly. Also, as an export-oriented country, a lower exchange rate benefits exports. So, during a rate-cut cycle in the US, I expect the TWD to appreciate, but the appreciation won’t be too large. Regarding USD/JPY, after Japan ends its ultra-low interest rate policy, capital may flow back into the yen, pushing it higher, so future USD/JPY could weaken. The euro is relatively stronger than the dollar, but Europe’s economic situation isn’t very good—high inflation but weak growth—so if the European Central Bank gradually cuts rates, the dollar might weaken slightly but not sharply.

If you want to seize trading opportunities based on USD exchange rate fluctuations, in the short term, focus on data such as CPI, non-farm payrolls, Federal Reserve meetings, and dot plots, which influence rate expectations. If you’re not doing intraday trading, you can use support and resistance levels of the dollar index, combined with policy differences between the US and major central banks, to identify swing opportunities over weeks or months. For medium- to long-term investors, diversifying into assets like gold and foreign exchange can help hedge against dollar volatility. When the dollar is at high levels and consolidating or weakening, such allocations are usually more effective in balancing the overall portfolio.