Recently, while looking at the trend of the US dollar, I noticed a pretty interesting phenomenon. After the rate cuts started in 2024, everyone assumed the US dollar would fall straight down—but in reality, the US Dollar Index has declined from the 114 peak in 2022 to the current 90–100 range, a drop of about 15%. Yet over the past year or so, it has remained in a sideways consolidation. So, will the US dollar rise back up? This question is actually more complicated than it looks on the surface.

The key is that the US dollar’s rise and fall has never been purely about whether there are rate hikes or rate cuts. Interest rates are only one factor. What truly determines the exchange rate is the combined effect of interest-rate differentials, demand for safe-haven assets, and global capital flows. In 2025, the path of rate cuts from the U.S. Federal Reserve has become “slow, late, and small.” Nonfarm employment data remains relatively strong, and inflation stubbornly refuses to come down, repeatedly pushing back the market’s expectations for rate cuts. Some institutions even believe that throughout 2026, rates may be kept unchanged until a policy shift happens in 2027.

But there’s a detail worth paying attention to here: the current hawkish stance of the Federal Reserve is more like being driven by incoming data rather than launching a new round of a structural rate-hike cycle. As long as employment, wages, and core inflation begin to slow over the next few quarters, there is still a chance that the policy stance could shift toward neutrality or even easing. In other words, the US dollar may not necessarily keep weakening.

Historically, the strength or weakness of the US dollar has often been tied to major events. During the 2008 financial crisis, capital flowed back into the US dollar, causing it to appreciate. During the COVID-19 pandemic in 2020, the United States “threw money” into the economy to rescue the market, which temporarily weakened the US dollar—but after the economy stabilized, it rebounded strongly again. The rapid rate-hike cycle of 2022–2023 pushed the US Dollar Index to high levels. Now that the market is entering a rate-cut cycle, it is gradually shifting from one-sided strength to high-level consolidation. These historical patterns all tell us that you can’t judge the US dollar by policy direction alone.

I think that over the coming year, the US dollar is more likely to show a pattern of high-range consolidation with a slightly weaker bias, rather than moving sharply lower in one direction. But that doesn’t mean the US dollar will keep dropping all the way. As long as new global financial risks emerge, geopolitical conflicts intensify, or market panic appears, capital may still flow back into the US dollar, because it remains, by nature, the world’s most important safe-haven currency.

Another factor that cannot be ignored is the trend of dedollarization. This is a real long-term pressure, but it is a slow process measured in “years.” It won’t, within the next 12 months, make the US Dollar Index drop directly from 100 to 90. Actions by central banks to reduce holdings of US Treasuries and increase holdings of gold are indeed happening, but the US dollar’s core position in global reserves and settlement systems is still difficult to replace in the short term.

The movement of the US Dollar Index also depends on the relative performance of its component currencies. If Europe cuts rates more slowly, and Japan and other major economies adopt more accommodative policies, the US dollar could remain resilient due to relative interest-rate spreads. For example, after Japan ends the era of ultra-low interest rates, capital returning could push up the yen, meaning the US dollar versus the yen would weaken. As for the Taiwan dollar, Taiwan’s interest rates tend to follow the US dollar, but they also have their own considerations. It is expected that during the US dollar rate-cut cycle, the Taiwan dollar will appreciate, though the magnitude won’t be too large. The euro is relatively stronger than the US dollar, but Europe’s economic situation is also not great—inflation is still high while growth is weak.

For investors, US dollar volatility creates opportunities. In the short term, focusing on data such as CPI, employment, and Federal Open Market Committee meetings—items that affect rate expectations—can help you capture volatility opportunities from each small event. If you don’t do intraday trading, you can use support and resistance levels of the US Dollar Index, combined with policy differences between the United States and major central banks, to look for swing opportunities over a period of weeks to a few months. Medium- to long-term investors can use gold, forex, and other assets to diversify risk from US dollar fluctuations. When the US dollar is consolidating at high levels or moving into a weakening phase, this kind of allocation is often more helpful for balancing the overall asset portfolio.

In the end, the question of whether the US dollar will rise back is answered as: “possibly, but not quickly.” The US dollar remains the world’s primary settlement currency. As long as the United States maintains strength in politics, the economy, and the military, the US dollar won’t depreciate significantly. At the same time, we also need to see that the US dollar’s relative advantage is slowly shrinking. In this kind of environment, rather than guessing the US dollar’s absolute direction, it’s better to seize relative opportunities and adjust trading strategies based on differences in different central banks’ policies.