I've been watching the US dollar's trend recently and realized that many people's understanding of the dollar's depreciation is actually somewhat mistaken. Simply put, the exchange rate of the dollar is the ratio of US dollars to other currencies, but its rise and fall are far more complex than just interest rate hikes or cuts.

Last year, when the Federal Reserve started cutting interest rates, many directly assumed the dollar would weaken. But in reality, the strength of the dollar depends on "relative attractiveness"—if other countries also cut rates simultaneously, the pressure for the dollar to depreciate isn't as strong. Moreover, exchange rates are influenced by a bunch of factors like interest rate differentials, risk aversion demand, and global capital flows. During the rapid rate hikes from 2022 to 2023, the dollar index surged to 114; after rate cuts began, it fell about 15% in total, but recently rebounded due to geopolitical risks.

I've noticed that the core factors influencing the dollar are actually four. First is monetary policy, which is the most direct driver. Second is the Federal Reserve's quantitative easing or tightening, which determines market liquidity. Third is the trade deficit—the US imports far more than it exports, which theoretically puts downward pressure on the dollar, but since the dollar is also the global reserve currency, many countries reinvest export earnings into US bonds and stocks, creating a special capital flow. Lastly, US global influence—so long as the US maintains strength in politics, economy, and military, the dollar won't weaken significantly.

However, in recent years, there's been a new trend—de-dollarization. The euro, yuan, and cryptocurrencies are challenging the dollar's dominance, and many central banks are reducing holdings of US Treasuries and increasing gold reserves. But honestly, the process of dollar depreciation will be slow; it won't drop from 100 to 90 overnight. The dollar's central role in the global settlement system is still hard to replace in the short term, but compared to its past dominance, now it's more of a "multi-currency coexistence" rather than a single hegemony.

In recent months, employment data has remained strong, and inflation hasn't been brought under control, so market expectations for the Federal Reserve have shifted from expecting rapid easing to a "slow, late, and limited" rate cut path. Some institutions even believe rates might stay unchanged throughout this year, with policy shifts not happening until 2027. But this hawkish stance is more data-driven rather than indicating a new rate hike cycle. If employment, wages, and core inflation start to slow in the coming months, policy could still return to neutral or even easing.

Based on this "slow, late, and limited" rate path, combined with long-term factors like geopolitical risks and de-dollarization, I think the dollar is more likely to fluctuate within a high range and weaken slightly over the next year. But that doesn't mean it will decline continuously—if financial risks or geopolitical conflicts emerge, capital will flow back into the dollar, as it remains one of the most important safe-haven currencies globally.

The impact of dollar depreciation on different assets varies. Gold generally benefits because gold is priced in dollars; when the dollar weakens, gold becomes cheaper to buy. US stocks might see short-term gains, but if the dollar becomes too weak, foreign investors might shift their investments to Europe or Japan. Cryptocurrencies also tend to benefit, as capital seeks assets to hedge against inflation.

Looking at other major currencies, the yen might appreciate as Japan ends its ultra-low interest rate policy, leading to a weakening of the USD/JPY pair. The Taiwan dollar is also expected to appreciate during the US rate-cut cycle, but the extent won't be large. The euro is relatively stronger than the dollar, but Europe's economy itself faces issues—high inflation coupled with economic weakness.

If you want to seize trading opportunities from dollar fluctuations, in the short term, focus on data like CPI, non-farm payrolls, and FOMC meetings that influence rate expectations. In the medium term, you can look at support and resistance levels of the dollar index combined with central bank policy differences to find trading ranges. For the long term, diversifying into gold, forex, and other assets to hedge dollar risk—especially during periods of dollar depreciation or high-range consolidation—can help balance your overall investment portfolio.