I've been thinking about a question lately: why is it so difficult to predict the rise and fall of the US dollar? Especially now, with expectations of rate cuts repeatedly coming up, many people are guessing what the dollar will do next.

Honestly, the reason the dollar goes up isn't just about interest rate hikes or cuts. After the rate cut cycle begins in September 2024, I’ve noticed that the market logic has become even more complex. Rate cuts should theoretically weaken the dollar, but in reality, the dollar has rebounded due to safe-haven buying driven by geopolitical conflicts. This is why just looking at policy alone can't give a clear judgment.

I’ve identified a key point: the strength or weakness of the dollar ultimately depends on the "relative attractiveness" comparison. If the US cuts rates but Europe and Japan cut even more slowly, the dollar’s interest rate advantage might actually be maintained. The dollar index has been fluctuating between 90 and 100 for nearly a year. What does this stalemate indicate? It shows that the market simply can’t determine the direction.

Looking at history, during the 2008 financial crisis, capital massively flowed back into the dollar. During the COVID-19 pandemic in 2020, the dollar temporarily weakened before rebounding strongly. The rapid rate hike cycle from 2022 to 2023 pushed the dollar index to 114 at one point. Now, we’re entering a rate-cut cycle, but the Fed’s stance seems more "data-driven" rather than a true easing cycle. As long as employment and inflation don’t show clear signs of slowing, interest rate policies may stay the same.

Interestingly, the answer to why the dollar rises isn’t just about US policy itself, but also about global safe-haven demand. When financial risks or geopolitical conflicts emerge, capital still flows back into the dollar. Essentially, the dollar remains the world’s most important safe-haven currency, a status that’s hard to shake in the short term.

However, I also see a long-term trend: de-dollarization is indeed happening. Central banks are reducing holdings of US Treasuries and increasing gold reserves. The use of alternative currencies like the euro and renminbi is also expanding. But this is a slow process measured in years, not something that will cause the dollar index to drop from 100 to 90 within 12 months.

For traders, instead of trying to predict a one-sided trend of the dollar, it’s better to seize opportunities within volatility. In the short term, focus on data points like CPI, non-farm payrolls, and FOMC meetings that influence rate expectations. Mid-term, use support and resistance levels of the dollar index combined with policy differences among countries to identify swings over weeks or months. Long-term investors might consider assets like gold, forex, or cryptocurrencies to diversify against dollar fluctuations.

Honestly, the reason the dollar rises is rooted in the market’s ongoing reassessment of its relative value. As long as you understand the four main drivers—interest rates, supply, trade, and global confidence—you can better grasp the logic behind the dollar’s movements.