I have been paying close attention to the trend of the US dollar recently, and honestly, the current situation is quite interesting. After the Federal Reserve begins cutting interest rates in 2024, many people thought the dollar would decline sharply, but in reality, it's not that simple. So far, the US dollar index has fallen from its high of 114 in 2022, with a total decline of about 15%, but this year it has been fluctuating between 90 and 100, nearly a year without a clear direction.

I notice a key point: market expectations for the Federal Reserve have shifted from "rapid easing" to a "slow, late, and minimal" rate cut path. Non-farm employment data remains strong, and inflation stubbornly persists, so the pace of rate cuts has been repeatedly delayed. Some institutions even believe that interest rates could remain unchanged throughout 2026, with a policy shift only possible in 2027. But here’s the main point: the Fed’s current hawkish stance is more data-driven rather than the start of a new rate hike cycle. As long as employment, wages, and core inflation begin to slow in the coming quarters, there’s still a chance for policy to return to easing.

Therefore, the dollar’s movement cannot be judged solely by rate hikes or cuts; it also depends on relative attractiveness. If Europe, Japan, or other economies also cut rates or adopt more easing policies, the dollar may not depreciate significantly. In fact, the dollar exchange rate is often the result of interest rate differentials, risk aversion demand, and global capital flows working together.

Historically, the dollar has gone through several important phases. During the 2008 financial crisis, capital flowed back into the dollar, causing a sharp appreciation; in 2020, during the pandemic, US stimulus measures temporarily weakened the dollar, but it rebounded as the economy stabilized; in 2022-2023, rate hikes pushed the dollar index higher; now, as we enter a rate-cutting cycle, the market is gradually shifting from a one-sided strength to high-level consolidation.

My observation is that over the next year, the dollar is more likely to fluctuate at high levels or weaken gradually rather than sharply depreciate. The dollar’s lows may occur when risk aversion rises, causing a rebound, because the dollar remains the world’s most important safe-haven currency. As long as new financial risks or geopolitical conflicts emerge globally, capital will continue to flow back into the dollar.

Another trend to watch is de-dollarization. This is real, but it’s a slow process measured in years, not something that will cause the dollar index to drop from 100 to 90 within 12 months. Central banks are indeed reducing holdings of US Treasuries and increasing gold reserves, but the dollar’s core position in the global reserve system remains difficult to replace in the short term. Currently, it’s more about a "multi-currency coexistence" rather than a complete replacement of the dollar.

The dollar’s movement also has clear impacts on different assets. A weakening dollar generally benefits gold, because gold is priced in dollars, so a weaker dollar makes gold cheaper to buy. A weaker dollar also encourages capital inflows into stocks, especially tech stocks. The cryptocurrency market benefits as well, because when dollar purchasing power declines, funds seek assets that hedge inflation, with Bitcoin often viewed as digital gold in such times.

If you want to seize trading opportunities from dollar exchange rate fluctuations, in the short term, focus on data like CPI, non-farm employment, and FOMC meetings that influence rate expectations. In the medium term, you can use support and resistance levels of the dollar index combined with central bank policy differences to identify swing opportunities over weeks to months. Long-term investors can diversify dollar risk with assets like gold and foreign exchange; when the dollar is at high levels or weakening, such allocations can better balance the overall portfolio.