Recently, I reviewed the exchange rate trends of the US dollar over the past few years and found that 2024 has indeed experienced a very interesting reversal.

I still remember at the end of 2023, many people were betting that the dollar would remain strong. At that time, the dollar index experienced a typical range-bound fluctuation—initially falling nearly 3% due to declining inflation at the beginning of the year, then rising 3.5% in May thanks to strong economic data, and from mid-July to early October, it surged for 11 consecutive weeks to hit the high of the year. During that period, the dollar was really fierce, especially when US Treasury yields hit new highs.

But the Federal Reserve started signaling dovishness in November, coupled with weaker-than-expected non-farm payroll data in October, and the dollar index began to weaken. By 2024, this trend became even more apparent.

Regarding the USD exchange rate trend, at that time, predictions from major institutions actually varied quite a bit. Goldman Sachs believed the US economy would achieve a soft landing, with interest rates remaining high, and forecasted the dollar would stay strong. But Wells Fargo’s economists thought that despite the US economy’s strength, the Fed’s tendency to cut rates would limit dollar gains, and they expected the dollar to generally depreciate in 2024. Societe Generale was even more aggressive, directly stating that the dollar would depreciate in 2024, erasing most of the real appreciation over the past decade.

The most interesting was the USD/JPY pair. In 2023, USD/JPY rose by 8%, mainly because the Fed was raising interest rates while the Bank of Japan was still maintaining negative interest rates. In November, USD/JPY even approached a 33-year high of 151.7.

But then came the turning point. The market started trading expectations that the Bank of Japan would soon end its negative interest rate policy. By 2024, this expectation became reality—the Bank of Japan indeed began a rate hike cycle in the first half of the year. Meanwhile, the Fed entered a rate-cutting mode. As a result, the USD/JPY trend reversed.

ING analysts at the time predicted that US short-term interest rates would decline before the Fed cut rates, combined with the Bank of Japan ending its negative interest rate policy in the second quarter of 2024, leading to a significant decline in USD/JPY. Looking at the actual trend afterward, this judgment was basically correct. Nomura Securities forecasted USD/JPY would fall to 135 by the end of the year, which roughly aligned with the actual situation.

Looking back, the exchange rate trend in 2024 indeed reflected a reversal logic. The dollar index oscillated amid mixed bullish and bearish factors, while USD/JPY declined due to convergence in monetary policies of the two countries. This case is very insightful—ultimately, exchange rate movements depend on monetary policy divergence. When policy differences narrow, the previous unilateral trend in exchange rates is prone to reverse.