Is the US dollar going to pump or fall in the future? Forecast of the USD exchange rate trend for 2025 and how to invest.

The US dollar (also known as the greenback) is the most traded currency in the forex market, and it can be paired with all other major currencies. The dollar is considered a pricing currency for commodity trading internationally and also plays the role of a reserve currency and investment currency. Today, let's explore what the main basis for the rise and fall of the dollar is? Will the dollar rise or fall in the future? How can we invest in the dollar to achieve maximum returns?

Definition of the USD Exchange Rate

The USD exchange rate refers to the value or exchange ratio of a certain currency relative to the US dollar.

For example, EUR/USD represents how many US dollars are needed to exchange 1 euro. If EUR/USD = 1.04, it means that 1.04 US dollars can be exchanged for 1 euro.

If EUR/USD rises to 1.09, it means that the euro is appreciating relative to the dollar, and the dollar is depreciating; conversely, if EUR/USD falls to 0.88, it indicates that the euro is depreciating relative to the dollar, and the dollar is appreciating.

As for the US Dollar Index, it is an index compiled from the exchange rates of six major international currencies (Euro, Yen, Pound, Canadian Dollar, Swedish Krona, and Swiss Franc) against the US Dollar. The level of the index represents the strength or weakness of the exchange rates of these six countries' currencies. Since the central banks of these countries may have methods of regulating exchange rates that are highly consistent with the US Dollar, the fluctuations of the Dollar Index do not necessarily directly reflect the impact of US interest rate cuts. It is also necessary to consider the corresponding measures taken by the countries of the currencies that make up the index for accurate analysis.

Analysis of Historical Trends in USD Exchange Rates

Let us review the historical cyclical fluctuations of the US dollar. Since the collapse of the Bretton Woods system in the 1970s, the dollar index has gone through eight phases.

Phase One Downward Period: 1971-1980, the Nixon administration was forced to announce the failure of the “gold standard”, and since then the exchange rate between gold and the US dollar has floated freely, leading to a phase of dollar overabundance; this was followed by the oil crisis, and the high-inflation dollar fell all the way down to below 90.

Second stage of the rise: From 1980 to 1985, former Federal Reserve Chairman Paul Volcker aggressively managed inflation, raising the federal funds rate to 20%, which was then maintained at a high level of around 8-10%. The US dollar index continued to strengthen, reaching its peak in 1985, marking the official end of the US dollar bull market.

Third Stage of Decline: From 1985 to 1995, the United States faced both fiscal and trade deficits, entering a prolonged bear market for the dollar under the “twin deficits”.

Fourth phase of the rising period: 1995-2002, Clinton successfully won re-election as president, leading the United States into the internet era. Emerging industries caused strong growth in the U.S., with funds flowing back to the United States, and the U.S. dollar index reaching a high of 120 points.

Fifth stage of decline: From 2002 to 2010, after the burst of the internet bubble, the US dollar weakened. During this period, the 911 incident occurred, along with long-term quantitative easing policies, which led to the financial tsunami in 2008 on the verge of breaking out. The US dollar continued to decline, falling to its lowest point, hovering around a low of about 60.

The sixth phase of the uptrend: From early 2011 to 2020, competitors in Europe experienced a debt crisis, China also faced a stock market crash, while the United States enjoyed stable growth. The Federal Reserve repeatedly boasted about interest rate hikes, and the US dollar index was supposed to soar steadily.

Seventh stage fall: Early 2020 - Early 2022, the outbreak of the COVID-19 pandemic prompted the United States to lower the benchmark interest rate to 0% to stimulate the economy, resulting in rampant money printing, a significant decline in the US dollar index, and severe inflation.

Phase 8 Fall: Early 2022 - End of 2024, inflation spirals out of control, Gate begins aggressive interest rate hikes, with the dollar interest reaching a 25-year high, while also starting to reduce the balance sheet. Although this successfully curbed inflation, it also challenged confidence in the dollar once again.

Forecast and Analysis of USD Exchange Rate Trends: USD and Major International Currencies

Considering the US economy, international political situation, and the performance of other major economies, the USD exchange rate is expected to show a strong trend in 2025. Based on the expectations for the USD in the future, let us analyze and predict the trend of the USD relative to the currencies of other countries.

EUR/USD (Euro/USD forex trend forecast)

The EUR/USD exchange rate and the US dollar index are almost moving in opposite directions, benefiting from the depreciation of the dollar, the improvement of the European Central Bank's policies, and the differences in economic expectations. If the market's expectations for the Federal Reserve's interest rate cuts and the slowdown of the US economy materialize, while the European economy continues to improve, it is expected to continue to rise in the future.

The latest trading data shows that EUR/USD has risen to 1.0835, demonstrating a sustained uptrend. If EUR/USD can stabilize at this level, it may continue to seek a breakout to higher levels, particularly at important psychological barriers such as 1.0900.

Technical indicators show that previous highs and trend lines may become strong support levels, while newly formed levels (such as 1.0900) could be key resistance points. If this resistance is broken, a forecast of higher pumps may be realized.

GBP/USD (British Pound/USD exchange rate trend forecast)

The main economic exchanges between the United Kingdom and the United States, similar to those between other European countries and the United States, are strongly correlated. Therefore, the trends of GBP/USD and EUR/USD are quite similar.

The market expects that the Bank of England will slow down its interest rate cuts compared to the Federal Reserve, providing support for the British pound. If the Bank of England adopts a more cautious approach to rate cuts, this will make the pound relatively strong against the dollar, pushing GBP/USD higher.

Comprehensive technical indicators suggest that GBP/USD is likely to maintain a fluctuating upward pattern in 2025, with a core volatility range of 1.25-1.35, driven mainly by policy divergence and risk aversion sentiment. If the economic and policy paths of the UK and the US further diverge, the exchange rate may challenge highs above 1.40, but caution is warranted regarding the pullback pressure from political risks and market liquidity shocks.

USD/CNH (USD/CNY forex trend forecast)

The trend of the US dollar against the Chinese yuan is influenced not only by market supply and demand but also closely related to the economic policies of the United States and China. If the Federal Reserve continues to raise interest rates and China's economy slows down, it may exert further pressure on the yuan, leading to an upward movement of USD/CNH.

The exchange rate policy of the People's Bank of China and its guiding role in the market will have a long-term impact on the renminbi exchange rate. If the central bank adopts stronger intervention measures, it may affect the trend of the US dollar.

From a technical perspective, the USD may continue to trade sideways in the range of 7.2300 to 7.2600, lacking momentum for a breakout in the short term. Investors should pay attention to the breakout situation within this range, as a breakout may provide further trading opportunities.

If the US dollar falls below 7.2260, and the relative strength index or other technical indicators show oversold or rebound signals, it may provide a buying opportunity for a short-term rebound.

USD/JPY (USD/JPY forex rate trend prediction)

The USD/JPY is one of the most liquid currency pairs, with the US dollar being the world's primary reserve currency and the Japanese yen ranking fourth globally.

Japan's basic wage in January increased by 3.1% year-on-year, the highest growth in 32 years, indicating that the Japanese economy may be changing its long-standing low inflation and low wage environment. With rising wages and potential inflationary pressures, the Bank of Japan may adjust interest rates in the future to address market concerns about currency depreciation. If Japan faces international pressure, particularly from the United States, it may further accelerate the pace of interest rate hikes.

It is expected that in 2025, USD/JPY may exhibit a downward trend. The market's expectations for interest rate cuts and the recovery of the Japanese economy will be a major driving force for trading. Technical analysis shows that if USD/JPY breaks below 146.90, it may further test lower points, while to reverse the current downward trend, it needs to break through the resistance at 150.0.

AUD/USD (Australian Dollar/US Dollar forex trend forecast)

Latest data shows that Australia's GDP grew by 0.6% quarter-on-quarter and 1.3% year-on-year in the fourth quarter, both exceeding market expectations. Meanwhile, the trade surplus in January rose to 56.2 billion, performing well. These figures support the strength of the Australian dollar.

The Reserve Bank of Australia (RBA) maintains a cautious stance, suggesting that the possibility of future interest rate cuts is relatively small. This means that, compared to the monetary policies of other major economies, Australia is likely to continue adopting a more aggressive position, thereby supporting the AUD.

Despite better-than-expected Australian data supporting the AUD, attention still needs to be paid to the potential adjustment of the dollar and the uncertainties in the global economic situation. If the Federal Reserve continues to implement loose policies in 2025, it will lead to a weaker dollar, thus providing momentum for the rise of AUD/USD.

Is now a good time to buy US dollars? How to seize trading opportunities brought by the fluctuations in USD exchange rates?

1. Short-term (Q1-Q2 2025): Structural fluctuations, mainly focusing on swing opportunities.

Bullish scenario: Geopolitical conflicts erupting (such as tensions in the Taiwan Strait) may cause the US dollar index (DXY) to rapidly surge to the 100-103 range. US economic data exceeded expectations (e.g., non-farm payrolls > 250,000), the market has delayed interest rate cut expectations, and the US dollar rebounded.

Bearish scenario: The Federal Reserve has continuously cut interest rates, and the ECB has lagged in shifting to a loose policy, causing the euro to strengthen and the DXY to fall below 95. The US debt crisis is brewing (such as a cold response to government bond auctions), and the credit risk of the US dollar is rising.

Strategy Recommendation: Aggressive investors: Buy low and sell high in the DXY range of 95-100, using technical indicators (such as MACD divergence, Fibonacci retracement) to capture reversal signals. Conservative investors: watch and wait for the clarity of the Federal Reserve's policy path.

2. Medium to Long Term (after Q3 2025): The US dollar may weaken moderately, shifting towards non-USD assets.

The Federal Reserve's interest rate cut cycle deepens, the advantage of US Treasury yields narrows, and funds flow towards high-growth emerging markets or the recovering Eurozone. If the global de-dollarization accelerates (such as the promotion of local currency settlement by BRICS countries), the marginal weakening of the US dollar's status as a reserve currency.

Strategy Suggestion: Gradually reduce long positions in US dollars and allocate to reasonably valued non-USD currencies (such as yen, AUD) or commodity-linked assets (gold, copper).

Dollar trading in 2025 will rely more on “data-driven” and “event-sensitive” approaches. Only by maintaining flexibility and discipline can one capture excess returns amidst exchange rate fluctuations.