Recently, I’ve been closely watching the movements of the US dollar and noticed a rather interesting phenomenon. Everyone has been discussing the Federal Reserve cutting interest rates, but the dollar hasn’t weakened directly—instead, it has been fluctuating quite frequently in the 90–100 range. Behind this, there are several deeper reasons. Today, let’s talk about what is really driving the dollar’s strength.

First, the most direct one—interest rates. The most fundamental reason for the dollar’s strength is still the interest rate differential. When US interest rates are high, global capital naturally flows into US dollar assets in search of returns. But what’s interesting now is that although the Federal Reserve has begun cutting rates, the pace is very slow. From 2026 until now, non-farm employment data has remained strong, and inflation hasn’t been so easy to bring down, so market expectations for rate cuts have been repeatedly pushed back. Many institutions even believe that interest rates may not move at all throughout this year, and that a turnaround won’t come until 2027. This kind of “slow, late, and limited” rate-cut path, to some extent, supports the dollar.

But that’s not everything. The dollar’s strength also depends on what other central banks around the world are doing. If Europe and Japan also cut rates, the dollar’s relative advantage would be less obvious. Conversely, if other major economies cut faster or adopt more accommodative policies, the dollar could actually strengthen relative to them. That’s why looking only at US data isn’t enough—you need to compare global central bank policies as a whole.

Now let’s look at the supply side. Over the past few years, the Federal Reserve has been conducting quantitative tightening (QT), which means it is withdrawing dollar liquidity from the market. Although QT doesn’t necessarily directly equal a dollar appreciation, it does support the level of interest rates. On top of that, the dollar is still the world’s primary reserve currency. The demand for the dollar from central banks and institutional investors around the globe always exists, which provides basic demand support.

There’s another point that’s often overlooked: the dollar’s strength also includes its level of trust. Although the US has debt issues, it still maintains advantages in global politics, economics, and military affairs. As long as this pattern doesn’t change, it will be difficult for the dollar to depreciate significantly. Of course, the trend toward de-dollarization is real—many countries are indeed increasing their gold holdings and reducing their holdings of US Treasuries—but it’s a slow, year-by-year process, and it won’t dismantle the dollar’s position in the short term.

Geopolitics is also playing a role. Recently, geopolitical conflicts have been heating up, and when capital seeks safety, it still tends to flow back into the dollar. The dollar’s safe-haven attribute often proves more effective than anything else during times of market panic. This also explains why the US dollar index has fallen from 114 in 2022 to the 90s now, but hasn’t continued to decline in a one-way fashion.

So, the reasons for the dollar’s strength are multi-faceted—not just interest-rate policy, but also global relative performance, supply factors, trust, and safe-haven demand. The stalemate expected in the first half of 2026 is likely to continue. The dollar is more likely to trade in high-range consolidation rather than weakening in a single direction. If you’re trading dollar-related markets, instead of chasing a one-way trend, it’s better to take advantage of swing opportunities. In the short term, you can watch data releases such as CPI, non-farm employment data, and FOMC. In the medium term, look at the support and resistance levels of the US dollar index. In the long term, diversifying risk with gold, foreign exchange, and other assets will be more stable.