A question that I’m frequently asked lately is: Will the US dollar fall? This question looks simple, but the answer is far more complicated than most people imagine.

Let’s start with the basic concept first. The US dollar exchange rate is essentially the conversion ratio between the US dollar and other currencies. For example, EUR/USD=1.04 means that 1.04 US dollars can be exchanged for 1 euro. When this number rises, it indicates the euro is appreciating and the US dollar is depreciating; conversely, when it falls, the US dollar is strengthening.

The dollar story in recent years has indeed been quite attention-grabbing. It dropped from a historical high of 114 in 2022 to the current 90–100 range, for a cumulative decline of about 15%. Last year alone, it fell nearly 9.5%, marking the largest annual decline since 2017. But this does not mean the dollar will keep weakening all the way, because there are too many factors behind exchange-rate fluctuations.

The most direct driver is, of course, interest rates. When interest rates are high, the dollar becomes more attractive, drawing in capital; when interest rates are low, funds flow into other high-yield markets. But there’s a key point here: the market doesn’t wait until rate hikes or cuts are confirmed before it reacts; instead, it prices in expectations in advance. So whether the dollar will fall depends less on current policy and more on what the market expects for future policy.

The current situation is that non-farm employment data continues to stay strong, and inflation remains sticky and can’t be brought down, repeatedly pushing back market expectations for rate cuts. The Federal Reserve has shifted from rapid easing to a “slow, late, small” rate-cut path, and some institutions even believe rates could remain unchanged throughout 2026. The key, however, is that this hawkish posture is driven more by data than by the start of a new structural interest-rate-hiking cycle. As long as employment, wages, and core inflation begin to slow, policy still has room to pivot toward easing.

In addition to interest rates, the supply of dollars also matters. Quantitative easing (QE) increases liquidity and usually lowers yields; quantitative tightening (QT) withdraws liquidity and pushes rates higher. But this doesn’t mean that QE will always weaken the dollar or that QT will always strengthen it. The dollar exchange rate is often the result of interest-rate differentials, risk-aversion demand, and global capital flows working together.

Another factor is the trade deficit. The US has long imported more than it exports, and by textbook logic this should create downward pressure on the dollar. But the US dollar is also the world’s primary reserve currency. Many countries use the dollars earned from exports to invest back into US assets, forming a distinctive combination of “trade deficit + capital inflow.” That’s why you can’t judge actual exchange-rate performance based on trade figures alone.

What’s even deeper is the US’s global influence. The dollar becoming a global settlement currency comes from the world’s trust in the United States. But this advantage is facing challenges. The trend toward de-dollarization is indeed happening—whether it’s the Eurozone, yuan-denominated crude oil futures, or the rise of virtual currencies, all of them are challenging the dollar’s dominance. Especially since 2022, many countries have started losing confidence in the dollar and turning to gold.

That said, it’s important to emphasize that the dollar is still the world’s most important reserve currency. De-dollarization is a long-term trend, progressing slowly on a year-by-year basis, and it won’t make the dollar index drop directly from 100 to 90 within 12 months. Central banks reducing their holdings of US Treasuries and increasing their gold reserves is indeed occurring, but in the short term the dollar’s core position in the global reserve system is still difficult to replace.

Taking all these factors together, and based on the “slow, late, small” interest-rate path—combined with the long-term factors of geopolitics and de-dollarization—the dollar in the future is more likely to show a pattern of high-range fluctuations and a relatively weak consolidation, rather than a one-way sharp decline. But that doesn’t mean the dollar will keep falling. As long as global financial risks emerge, geopolitical conflicts occur, or markets panic, capital may still flow back into the dollar, because it remains the world’s most important safe-haven currency.

Will the dollar fall? The answer is: it may weaken slowly, but it won’t fall sharply. It’s more likely to keep oscillating within a range. The trend of the dollar index depends not only on the US itself, but also on the relative performance of major economies such as Europe and Japan. If Europe cuts rates more slowly and Japan maintains a more accommodative policy, the dollar could also stay resilient due to relative interest-rate differentials.

For investors, instead of passively waiting, it’s better to plan ahead. In the short term, you can focus on data that affect rate expectations—such as CPI, non-farm employment, and FOMC meetings—to seize opportunities arising from volatility. For medium- and long-term investors, using gold, forex, and other assets to diversify can help hedge against dollar fluctuation risk. When the dollar is fluctuating at high levels or moving into a weakening phase, such allocations often help balance the overall portfolio more effectively. The strength or weakness of the dollar isn’t just a headline topic—it directly affects our investment returns and asset allocation. Only by positioning early and following the trend can we truly capture the opportunities brought by exchange-rate fluctuations.