Recently, many people have been asking whether they should enter the US dollar market now. Honestly, this is a good question because the dollar's trend is indeed a bit complicated.

First, let's state the conclusion: the US dollar is not currently in a one-sided trend; it is more of a high-range consolidation. The Federal Reserve started cutting interest rates last year, but recent employment data remains quite strong, and inflation remains sticky, so market expectations for rate cuts have been adjusting. The pace has shifted from "rapid easing" to "slow, late, and minimal," with some institutions even believing that rate cuts might not happen throughout 2026, and that a turnaround may only come in 2027.

But here’s a key point: the Fed’s hawkish stance now is mainly driven by data, not a new rate hike cycle. As long as employment and inflation begin to ease in the coming quarters, policy could still shift toward easing. So, buying dollars now isn’t about chasing highs; it’s about waiting for a relatively balanced position.

I’ve noticed that the dollar index is currently oscillating between 90 and 100, down significantly from the high of 114 in 2022. The full-year decline in 2025 is close to 9.5%, the largest annual drop since 2017. However, due to rising geopolitical tensions, the dollar has recently rebounded somewhat. This high-range sideways consolidation has lasted nearly a year, indicating that the market is still hesitant.

What are the main factors influencing the dollar exchange rate? I believe there are four core factors worth paying attention to. The first is interest rate policy, which is the most direct driver. When interest rates are high, capital flows into the dollar; when rates are low, capital moves elsewhere. But investors shouldn’t just look at rate hikes or cuts themselves; they should also consider market expectations for future policy, which can often be seen in the Federal Reserve’s dot plot. The second factor is the dollar supply, i.e., quantitative easing (QE) and quantitative tightening (QT). QE increases dollar liquidity, QT tightens it, but this doesn’t necessarily mean QE always devalues the dollar or QT always appreciates it, because exchange rates are the result of interest rate differentials, risk aversion, and global capital flows working together.

The third factor is the trade deficit. The US has long imported more than it exports, which should theoretically lead to a dollar depreciation. But in reality, the US is also the world’s largest capital market, with many countries reinvesting their export earnings into US Treasuries and US stocks, creating a peculiar combination of “trade deficit plus capital inflow.” Therefore, exchange rate movements cannot be judged solely by trade figures. The fourth factor is the US’s global influence and creditworthiness. The dollar’s role as the main global settlement currency relies on trust in the US. However, in recent years, the de-dollarization trend has been strengthening, with the euro, renminbi, and gold sharing parts of the flow. This puts structural pressure on the dollar, but it’s unlikely to collapse suddenly in the short term because the dollar’s position in global reserves and settlement systems remains hard to replace.

Looking at history, I reviewed the dollar’s performance over the past 50 years and found that each major economic event tends to rewrite its direction. During the 2008 financial crisis, panic led to a massive flight into the dollar, causing a sharp appreciation. During the COVID-19 pandemic in 2020, the US’s massive money printing initially weakened the dollar, but as the economy stabilized, it rebounded strongly. In the 2022–2023 rate hike cycle, the dollar index once hit a high point. Now, as we enter a rate-cutting cycle, the dollar’s interest rate advantage is shrinking, and the market has shifted from a one-sided strength to high-range consolidation. These historical patterns tell us that the dollar’s movement isn’t solely determined by rate hikes or cuts; policy, economy, and risk events all play a role.

Is it worth buying dollars now? I think it depends on the time frame. In the short term, data releases like CPI, non-farm payrolls, and FOMC meetings can each influence the exchange rate. If you’re doing short-term trading, you need to grasp the timing of these data points. But if you’re not a day trader, you can use support and resistance levels of the dollar index, combined with policy differences between the US and major central banks, to identify swing opportunities over a few weeks to months.

For medium- and long-term investors, I recommend diversifying dollar risk with assets like gold, foreign exchange, and other investments. When the dollar is consolidating at high levels or weakening, such allocations can help balance your overall portfolio. A weakening dollar is generally favorable for gold because gold is priced in dollars; when the dollar depreciates, gold becomes relatively cheaper. A weaker dollar also tends to attract capital inflows into stocks, especially tech and growth stocks, but if the dollar becomes too weak, foreign investors might shift to other markets. In cryptocurrencies, a weaker dollar usually has a positive effect, as capital seeks assets that hedge against inflation.

Looking at major currency pairs, Japan recently ended its ultra-low interest rate policy, so capital may flow back into the yen, causing USD/JPY to weaken. The Taiwanese dollar is expected to appreciate, but not by much, due to domestic considerations. The euro is currently stronger relative to the dollar, but Europe’s economic situation isn’t very good—high inflation but weak growth—and if the European Central Bank gradually cuts rates, the dollar might weaken slightly but not collapse significantly.

In summary, the dollar is more likely to show high-range consolidation and sideways weakness rather than a one-way decline. But as long as new financial risks or geopolitical conflicts emerge globally, capital may flow back into the dollar because it remains the world’s most important safe-haven currency. The de-dollarization trend is real and ongoing, but it’s a slow process measured in years, not months. It’s unlikely that the dollar index will drop from 100 to 90 within the next 12 months. So, buying dollars now isn’t about chasing highs; it’s about positioning in a relatively balanced state.