Will the US dollar fall? 2025 US dollar exchange rate trend analysis and investment layout

The weakening of the US dollar has become a consensus, but the truth is far more complex than you think.

After the Federal Reserve began a rate-cutting cycle in September 2024, the market was flooded with voices saying “the dollar will depreciate.” However, judging the dollar’s decline solely based on rate cuts is actually overly naive. According to the latest Fed dot plot, the US interest rate target will be lowered to around 3% before 2026, but this hides a deeper logic behind global capital flows—the fate of the dollar is not determined solely by rate cuts.

Understanding the USD Exchange Rate: A Barometer of the Global Economy

The USD exchange rate essentially reflects the purchasing power comparison between the dollar and other currencies. For example, EUR/USD=1.04 means 1.04 USD can exchange for 1 euro; if EUR/USD rises to 1.09, it indicates the euro is appreciating and the dollar is depreciating.

But there’s an easily overlooked point—the movement of the US Dollar Index (DXY) depends not only on US policies but also on the actions of central banks in the eurozone, Japan, the UK, and other countries. In other words, a rate cut in the US does not necessarily mean the dollar index will fall, because other countries may also be cutting rates.

Will the US dollar fall? Analyzing four major influencing factors one by one

Interest Rate Policy: Market expectations are the most important

Interest rates are the most direct indicator of the dollar’s attractiveness. When rates are high, USD assets offer high returns, attracting capital; when rates are low, capital seeks other places. But investors often make the mistake of only looking at current rate hikes or cuts, ignoring market expectations.

The USD market is highly efficient and will react in advance—before official rate cuts, the dollar may already weaken. Therefore, the key to judging the dollar’s trend is to observe the dot plot and assess market expectations for future policies.

USD Supply: The hidden effects of QE and QT

Quantitative easing (QE) increases the supply of dollars in the market, lowering the dollar’s value; quantitative tightening (QT) has the opposite effect. But these impacts are also lagging, requiring investors to position themselves early.

Trade Patterns: Long-term effects of trade imbalances

The US has maintained a long-term trade deficit, importing more than exporting. When imports increase, more dollars are needed for payments (dollar appreciation); when exports decrease, demand for dollars drops (dollar depreciation). However, such effects are usually long-term and hard to notice in the short term.

Global Confidence: The real threat of de-dollarization waves

This is the most underestimated factor. Since the US abandoned the gold standard, waves of “de-dollarization” have emerged—establishment of the eurozone, launch of RMB crude oil futures, rise of cryptocurrencies—all eroding dollar hegemony.

Since 2022, many countries have lost confidence in US Treasuries and have turned to accumulating gold. If the US cannot rebuild global trust in the dollar, dollar liquidity will face decline risks. This is why the Fed has been so cautious with rate cuts.

Historical Imprints: From the collapse of the gold standard to today

Over the past 50 years, the dollar index has experienced eight key phases, each with significant fluctuations corresponding to major economic events:

• 2008 Financial Crisis: Market panic, capital rushes back into USD, causing a sharp appreciation
• 2020 Pandemic Period: US large-scale liquidity injections, briefly weakening the dollar, then rebounding due to economic recovery
• 2022-2023 Aggressive Rate Hikes: Fed repeatedly raises rates, making the dollar strong against most currencies, with the index breaking through 114
• 2024-2025 Rate Cuts Begin: Capital starts flowing into cryptocurrencies, gold, and other alternative assets

These historical patterns tell us that the dollar’s movement is never driven by a single factor but is the result of multiple forces intertwined.

Will the US dollar fall? The complex truth behind market forecasts

Based on current circumstances, several key points deserve attention:

Bearish factors dominate—trade tensions escalate, de-dollarization continues, gold keeps rising—all unfavorable for the dollar.

But it won’t decline unilaterally—geopolitical risks can erupt at any time. In case of a financial crisis or escalation of geopolitical conflicts, capital will still flee to the “ultimate safe-haven asset”—the dollar.

The key lies in the relative speed of rate cuts—although the dollar is cutting rates, other currencies in the EUR/USD basket are also doing so. Whoever cuts faster or more aggressively will appreciate. If the euro’s rate cuts are slower than the US, the euro will appreciate relative to the dollar, causing the dollar to weaken naturally.

Therefore, the most likely trend for the USD index in the next year is “high-level oscillation followed by relative weakness,” rather than a straightforward sharp decline. This means opportunities abound amid volatility.

How a weakening dollar impacts various assets: a chain reaction overview

Gold’s status as a beneficiary is established

When the dollar weakens, gold benefits—because gold is priced in USD, a weaker dollar makes gold cheaper for buyers, increasing demand. Additionally, rate cuts lead to lower yields on other assets, reducing opportunity costs for gold and boosting its attractiveness.

The dual-edged sword of the stock market

Rate cuts stimulate capital inflows 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, weakening the appeal of US equities.

Cryptocurrency as an inflation hedge

A weaker dollar indicates declining purchasing power, which generally has a positive impact on cryptocurrencies. Bitcoin, often called “digital gold,” is viewed as a store of value during global economic turbulence and dollar depreciation.

The real-time interpretation of major currency pairs

USD/JPY (US dollar vs. Japanese yen)—Japan has ended its ultra-low interest rate era, capital is flowing back into Japan, and the yen may appreciate, putting pressure on USD/JPY to depreciate.

TWD/USD (New Taiwan dollar vs. US dollar)—Taiwan’s interest rates follow the US, but domestic policies (like housing market controls) limit rate cuts. As Taiwan is export-oriented, a lower exchange rate benefits exports, so the TWD is expected to appreciate mildly.

EUR/USD (Euro vs. US dollar)—The euro remains relatively strong, but Europe’s economy is weak and inflation high. If the European Central Bank gradually cuts rates, the dollar will weaken, but the magnitude won’t be too large.

Practical strategies: how to profit from volatility

The dollar’s fluctuations are not just news—they directly impact your investment returns and asset allocation. This rate-cutting cycle signals a new market rhythm—capital flows are changing, and opportunities are shifting.

Short-term trading perspective—USD index tends to fluctuate significantly around each CPI release. Mastering timing and rapid analysis of information can help capture short-term trading opportunities, whether long or short.

Medium-term positioning—uncertainty itself is an opportunity. Gold, cryptocurrencies, quality stocks—these can all benefit during a dollar depreciation cycle. Position early and follow the trend.

Long-term allocation—the de-dollarization trend and the health of the US economy are key to the long-term direction of the dollar index. Pay attention to these two dimensions and adjust your asset allocation accordingly.

In short, the dollar will fall, but not in a simple, one-sided manner. This is the charm of investing—within a complex landscape, there are always opportunities for precise gains.