People paying close attention to the U.S. dollar market should have felt it—expectations for interest rate cuts have been truly volatile. Since 2026, non-farm payroll data has remained strong, and inflation hasn't been as subdued as expected. Market expectations for the Federal Reserve have shifted from "rapid easing" to a path of "slow, late, and limited" rate cuts. Some institutions even believe that interest rates may remain unchanged throughout this year, with policy shifts not happening until 2027.

This uncertainty is directly reflected in the USD exchange rate. Currently, the U.S. dollar index fluctuates between 90 and 100, appearing to have no clear direction. But looking back over the past few years, the era of dollar strength has gradually passed. Remember the rate hike cycle from 2022 to 2023? The dollar index once surged to a historic high of 114, then steadily declined, now down by 15%. In 2025, it even recorded the largest annual decline since 2017.

I’ve noticed an interesting phenomenon: the Fed’s hawkish stance now seems very firm, but in reality, it’s more driven by data rather than initiating a new cycle of structural rate hikes. As long as employment and inflation begin to slow in the coming quarters, there’s still a chance for policy to shift toward easing. That’s why I believe the dollar is more likely to fluctuate at high levels and weaken gradually over the next year, rather than sharply depreciate in a single direction.

But that doesn’t mean the dollar will keep falling. As long as there are financial risks or geopolitical conflicts globally, capital will flow back into the dollar because it remains the most important safe-haven currency. Also, don’t forget that the dollar index’s movement depends not only on the U.S. itself but also on the relative performance of its component currencies. If Europe slows its rate cuts or Japan maintains a more accommodative policy, the dollar’s relative strength could persist.

Historically, major swings in the dollar tend to be linked to significant economic events. During the 2008 financial crisis, capital rushed back into the dollar; during the 2020 pandemic, the U.S. flooded the market with money, causing the dollar to weaken temporarily, then rebound as the economy stabilized. This time, the story is a bit different. De-dollarization is indeed a long-term trend, with the eurozone, yuan, crude oil futures, and cryptocurrencies challenging dollar dominance. Many countries are losing confidence in U.S. Treasuries and turning to gold. But this is a slow process measured in years; in the short term, the dollar’s core role in global reserves and settlement systems remains difficult to replace.

The dollar’s trend has a significant impact on various assets. A weakening dollar generally benefits gold because gold is priced in dollars, so a weaker dollar makes gold cheaper to buy. U.S. rate cuts also tend to encourage capital inflows into stocks, especially tech and growth stocks. The cryptocurrency market also benefits, as declining dollar purchasing power drives funds toward inflation-hedging assets, with Bitcoin’s role as digital gold becoming more attractive.

Looking at the major currencies against the dollar, the yen might appreciate as Japan ends its ultra-low interest rate policy, leading to capital inflows. Future USD/JPY could weaken. The Taiwan dollar is expected to appreciate but not by much, since Taiwan’s interest rates tend to follow the dollar, though domestic factors also matter. The euro is relatively stronger than the dollar, but Europe’s economy isn’t very robust; if the European Central Bank slowly cuts rates, the dollar might weaken slightly but not depreciate significantly.

To seize trading opportunities from dollar exchange rate fluctuations, in the short term, closely monitor data like CPI, non-farm payrolls, and FOMC meetings—these influence rate expectations. Swing traders can use support and resistance levels of the dollar index combined with differences in central bank policies across countries to find opportunities. Medium- and long-term investors can diversify risk with gold, forex, and other assets. When the dollar is at high levels and oscillating or beginning to weaken, such allocations can help balance the overall portfolio. Instead of passively waiting for exchange rates to fluctuate, it’s better to position early and follow the trend.