Recently, people have been asking whether the US dollar will rise or fall. I’ve organized this question carefully. To be honest, the dollar’s trend is much more complicated than most people think.

First, the conclusion: by 2026, the US dollar is more likely to fluctuate at high levels rather than weaken in a one-way decline. Why? Because the Federal Reserve’s current stance is a "slow, late, and cautious" interest rate cut path, and it is data-driven, not the start of a new rate hike cycle. As long as employment and inflation continue to slow, there’s still a chance for policy to shift toward easing.

Looking back at the dollar’s history, what levels has the US dollar index reached? In 2022, the dollar index surged to a high of 114, when the US was rapidly raising interest rates, attracting a large influx of capital. But since then, it has already fallen about 15%. In 2025, it declined nearly 9.5% for the whole year, the largest annual drop since 2017. Currently, the dollar index is oscillating between 90 and 100, and this stalemate has lasted almost a year.

The main factors influencing the dollar are actually just a few key points. First is interest rates, which are the most direct driver. When interest rates are high, the dollar’s attractiveness increases, and capital flows in; when rates are low, capital moves to other markets. But the key is not just looking at rate hikes or cuts themselves, but at market expectations. The entire forex market is highly efficient and won’t wait until a rate cut is confirmed for the dollar to start falling.

Second is the dollar’s supply, i.e., QE and QT. QE increases liquidity, QT withdraws liquidity. But this doesn’t necessarily mean QE causes the dollar to depreciate. The exchange rate of the dollar is often the result of a combination of interest rate differentials, risk aversion demand, and global capital flows.

Another factor is the trade deficit. The US has long imported more than it exports, which theoretically puts downward pressure on the dollar. But the dollar is also the world’s primary reserve currency, with many countries reinvesting the dollars earned from exports into US bonds and stocks, creating a "trade deficit plus capital inflow" scenario. So, actual exchange rate performance cannot be judged solely by trade figures.

The last factor is the US’s global influence. The dollar’s status as the main global settlement currency stems from worldwide trust in the US. But this position is now being challenged. The Eurozone, the Chinese yuan, and even cryptocurrencies are challenging dollar hegemony. The de-dollarization trend has become more evident since 2022, with many countries losing confidence in US debt and turning to buy gold. However, it’s important to emphasize that the dollar remains the world’s most important reserve currency; it’s just increasingly in a "dollar plus multiple currencies coexist" pattern. This will exert structural pressure on the dollar for a long time, but it won’t cause a sudden collapse in the short term.

When analyzing exchange rates, we also need to consider relative attractiveness. If other countries also cut interest rates simultaneously, the dollar may not necessarily fall sharply due to US rate cuts. For example, if Japan ends its ultra-low interest rate policy, capital might flow back into the yen, causing USD/JPY to weaken. As for Taiwan, the local interest rate follows the US, but Taiwan has its own considerations—such as wanting to cool the housing market, so it can’t recklessly cut rates. Also, Taiwan is export-oriented, so a weaker exchange rate benefits exports. Therefore, during a US rate-cut cycle, the Taiwan dollar is expected to appreciate, but the magnitude won’t be too large. The euro is relatively stronger than the dollar, but Europe’s economy isn’t doing well either—high inflation but weak growth.

Over the past 50 years, the dollar’s exchange rate has often been affected by major economic events. During the 2008 financial crisis, market panic caused a large capital flight into the dollar, sharply appreciating it. During the COVID-19 pandemic in 2020, the US flooded the market with money to rescue the economy, causing the dollar to weaken temporarily, but it then rebounded strongly as the economy stabilized. From 2022 to 2023, the rate hike cycle caused US interest rates to rise rapidly, pushing the dollar index to new highs. Entering 2024 and 2025, with a rate cut cycle, the dollar’s interest rate advantage has begun to shrink, and the market has gradually shifted from a one-sided strength to high-level oscillation.

These historical patterns show that the dollar’s trend cannot be judged solely by rate hikes or cuts; it requires considering policy, economic conditions, and risk events together.

The impact of the dollar’s trend on different assets is also worth noting. A weaker dollar and declining real interest rates are indeed more favorable for gold, because gold is priced in dollars, and a weaker dollar makes gold cheaper to buy. But gold prices are also influenced by geopolitical risks, central bank buying, and risk aversion. When the US cuts rates, it encourages capital to flow into stocks, especially tech and growth stocks. But if the dollar becomes too weak, foreign investors might shift their funds to Europe, Japan, or emerging markets, reducing the inflow into US stocks. In cryptocurrencies, a weaker dollar means reduced purchasing power, which usually has a positive effect on the crypto market, as funds seek assets to hedge inflation. Bitcoin, often called digital gold, is generally seen as a store of value during global economic turmoil, dollar depreciation, or rising inflation.

If you want to invest based on dollar exchange rate fluctuations, in the short term, every small event can influence the rate. It’s important to monitor key data releases like CPI, non-farm payrolls, FOMC meetings, and dot plots that affect rate expectations, analyze them carefully, and seize short-term trading opportunities. If you’re not doing intraday trading, 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- to long-term investors, diversifying with gold, foreign exchange, and other assets can help hedge against dollar volatility. When the dollar is oscillating at high levels or weakening, such allocations are usually more effective in balancing the overall portfolio.