Friends who have been paying attention to the US dollar exchange rate should have felt it—the expectation for the dollar’s ups and downs has been shifting again and again. Since 2024 began with rate cuts, many thought the US dollar would keep weakening. But after geopolitical conflicts escalated, there was a phase of rebound, and it’s still trading in a range between 90 and 100—this kind of standoff has lasted almost a year.

To be honest, the US dollar’s rise and fall isn’t that simple. Many people think it’s enough to just look at rate hikes and rate cuts. But that’s far from sufficient. Interest rates are indeed the lifeblood of the US dollar, yet you also need to consider the relative policy stances of global central banks, trade deficits, geopolitical risks, and even issues with the United States’ own credit. Only when these factors work together do they determine the final direction of the US dollar’s movement.

Recently, I noticed a phenomenon. In the first half of this year, the non-farm employment data stayed consistently strong, and inflation also couldn’t be brought down. This has repeatedly pushed back market expectations for the Federal Reserve’s rate cuts. The public consensus has now shifted from “rapid easing” to a rate-cut path of “slow, late, and small.” Some institutions even believe that throughout this year, interest rates might be kept unchanged, with policy turning only in the coming year.

But here’s a key point: the Fed’s current hawkish stance is driven more by data than by any new round of rate-hike cycle. As long as employment, wages, and core inflation start to cool over the next few quarters, the policy stance still has a chance to return to neutral or even easing. So the future direction of the US dollar’s rise and fall ultimately depends on how the data performs.

From this perspective, over the next year the US dollar is more likely to see high-range choppy trading, with a generally weaker undertone. But that doesn’t mean it will fall all the way. As long as financial risks emerge globally, geopolitical conflicts intensify, or the market becomes panicked, capital will still flow back into the US dollar—because in essence it remains the world’s most important safe-haven currency.

It’s also worth noting that the US dollar index isn’t determined solely by the United States itself; it depends on the relative performance of the component currencies as well. For example, Japan has just ended its ultra-low interest rate policy. If capital returns, it could support the yen and push the US dollar yen exchange rate lower. If the European Central Bank cuts rates more slowly, the US dollar may instead stay resilient due to the relative interest-rate differential. The situation with the Taiwan dollar is more special: Taiwan is an export-oriented economy, and a lower exchange rate benefits exports. So during the US dollar rate-cut cycle, the Taiwan dollar is expected to appreciate, but the magnitude won’t be that large.

There’s another long-term factor that can’t be ignored—de-dollarization. This is a real trend. Central banks in various countries do reduce their holdings of US Treasuries and increase their gold holdings. But it’s a slow process measured in years; it won’t cause the US dollar index to drop directly from 100 to 90 within the next 12 months. In the short term, the US dollar’s core position in global reserves and the settlement system is still difficult to replace.

For traders, in the short term you can focus on data such as CPI, non-farm employment, and FOMC meetings—these affect rate expectations—to capture opportunities from the volatility of the US dollar for going long or short. If you don’t do intraday trading, you can use the support and resistance levels of the US dollar index, together with policy differences among major central banks, to look for swing opportunities over periods of weeks to months. For medium- to long-term investors, you can diversify US dollar volatility risk with gold, foreign exchange, and other assets. When the US dollar is fluctuating at high levels or entering a weakening phase, these allocations typically help better balance the overall portfolio.

In the end, the logic behind the US dollar’s rise and fall comes down to the combined effect of interest-rate differentials, safe-haven demand, and global capital flows. Instead of waiting passively, it’s better to plan ahead—then follow the trend.