Deep Analysis of the 2025 US Dollar Trend: From Historical Cycles to Investment Opportunities

Core Concepts of the US Dollar Exchange Rate

The essence of the US dollar exchange rate reflects the conversion ratio between the dollar and other currencies. For example, when EUR/USD is 1.04, it means 1.04 US dollars are needed to exchange for 1 euro. When this value rises to 1.09, it indicates the euro is appreciating and the dollar is depreciating; conversely, a drop to 0.88 suggests the euro is depreciating and the dollar appreciating.

The US Dollar Index is a weighted composite of the exchange rates of the dollar against six major currencies: euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The index’s level intuitively reflects the strength or weakness of the dollar relative to these currencies. It’s important to note that the Federal Reserve’s rate cut policies do not necessarily lead to a decline in the dollar index; it also depends on whether the countries of the index components implement supportive measures.

Historical Cycles and Movement Patterns of the US Dollar

Since the collapse of the Bretton Woods system in 1971, the US Dollar Index has experienced eight complete phases of rise and fall cycles:

Phase 1 (1971-1980): Downward Pressure Stage
After the gold standard was abandoned, the dollar flooded the market, coupled with high inflation triggered by the oil crisis, leading the dollar index to decline below 90.

Phase 2 (1980-1985): Strong Recovery Stage
Former Fed Chair Volcker adopted a tough policy, raising the federal funds rate to 20%, then maintaining it at 8-10%, causing the dollar index to rally to a high in 1985.

Phase 3 (1985-1995): Fiscal Pressure Stage
The US faced twin deficits—fiscal and trade deficits—leading to a long-term bear market for the dollar.

Phase 4 (1995-2002): Growth Momentum Stage
The internet boom drove strong US economic growth, capital inflows accelerated, and the dollar index surged to 120 points.

Phase 5 (2002-2010): Recession and Crisis Stage
The burst of the internet bubble, 9/11 attacks, subprime mortgage crisis, and quantitative easing caused the dollar index to plunge to around 60.

Phase 6 (2011-2020 early): Safe-Haven Appreciation Stage
Eurozone debt crisis and China stock market crash increased the dollar’s safe-haven appeal; Fed rate hike expectations strengthened, and the dollar index steadily rose.

Phase 7 (2020 early - 2022 early): Liquidity Flood Stage
COVID-19 pandemic prompted the Fed to cut rates to zero and implement large-scale easing, causing the dollar to weaken sharply and trigger global inflation.

Phase 8 (2022 early - end of 2024): Aggressive Tightening Stage
To combat runaway inflation, the Fed launched its most aggressive rate hike cycle in 25 years, successfully controlling inflation but damaging confidence in the dollar again.

Current Situation and 2025 US Dollar Index Forecast

The dollar index has recently fallen for five consecutive days, hitting a new low since November (around 103.45), and has broken below the 200-day simple moving average—this technical signal generally indicates a bearish outlook.

March employment data fell short of expectations, reinforcing market bets on multiple Fed rate cuts, which in turn lowered US Treasury yields and weakened the dollar’s investment appeal.

From a technical perspective, the dollar faces clear downward pressure. While a short-term rebound is possible, the overall trend points to weakness. If the Fed continues easing and economic data remain soft, the dollar index could stay weak throughout 2025, with a key support level possibly falling below 102.00.

Analysis of Major Currency Pairs and the US Dollar

EUR/USD Outlook

The euro against the dollar almost moves inversely to the dollar index. Supported by dollar depreciation, improved ECB policies, and optimistic economic outlooks, EUR/USD is expected to continue rising.

Recent trading shows EUR/USD has risen to 1.0835 with steady upward momentum. If it stabilizes at this level, it may continue to challenge key psychological levels like 1.0900. Technical patterns suggest that a successful breakout above 1.0900 could further open the upside.

GBP/USD Outlook

The relationship between the pound and the dollar is similar, with high correlation to EUR/USD. Market expectations of a slower rate cut path by the Bank of England compared to the Fed provide some support for the pound.

GBP/USD is expected to maintain a sideways upward trend, fluctuating mainly between 1.25 and 1.35. Policy divergence and risk aversion are the main drivers. If UK and US economic and policy conditions diverge further, the exchange rate could push above 1.40, but geopolitical risks and liquidity volatility may cause pullbacks.

USD/CNH (US Dollar to Chinese Yuan) Outlook

The performance of USD/CNH is influenced by both US and Chinese economic policies and market supply and demand. If the Fed continues high interest rates while China’s economy slows, USD/CNH may face upward pressure.

The People’s Bank of China’s exchange rate policies will significantly impact the yuan’s long-term trend. Currently, USD/CNH hovers between 7.2300 and 7.2600, lacking momentum for a breakout. Investors should closely monitor this key range; a break above or below will signal new trading opportunities. Technical indicators suggest that if the dollar falls below 7.2260 and oversold rebound signals appear, short-term buying opportunities may arise.

USD/JPY Outlook

As the most traded currency pair globally, USD/JPY’s movement attracts much attention. Japan’s wage growth hit a 32-year high (3.1% YoY in January), indicating a possible exit from long-term low inflation. Rising wages and inflation pressures may prompt the Bank of Japan to accelerate rate hikes, especially under international pressure.

In this context, USD/JPY is expected to trend downward. Market rate cut expectations and Japan’s economic recovery will be key drivers. Technical analysis shows that if USD/JPY falls below 146.90, it may test lower levels; reversing the downtrend requires breaking above 150.0.

AUD/USD Outlook

Australia’s economic data are strong: Q4 GDP grew 0.6% QoQ and 1.3% YoY, both exceeding expectations; January trade surplus reached 56.2 billion, showing robust strength. These figures support the Australian dollar’s strength.

The Reserve Bank of Australia remains cautious, hinting limited room for rate cuts, which means Australia will likely maintain a relatively hawkish monetary stance compared to the US, supporting the AUD. If the Fed continues easing in 2025, weakening the dollar, AUD/USD could gain upward momentum.

Investment Opportunities in the US Dollar for 2025

Short-term Opportunities (Q1-Q2): Swing Trading in Structural Volatility

Bullish scenario: Escalating geopolitical conflicts could cause the dollar index to spike rapidly to 100-103; stronger-than-expected US economic data may delay rate cuts, leading to a dollar rebound.

Bearish scenario: If the Fed cuts rates continuously while the ECB remains dovish, the euro will strengthen, pushing the dollar index below 95; US debt crisis risks could also undermine dollar confidence.

Trading strategy: Aggressive investors may attempt high-low trading within the 95-100 range, using technical indicators to catch reversal signals. Conservative investors should wait for clearer policy signals from the Fed.

Medium to Long-term Outlook (Post-Q3): Mild Dollar Weakening Trend

As the Fed deepens its rate cut cycle, US Treasury yields will decline, and international capital may flow into high-growth emerging markets or recovering Eurozone assets. Accelerated de-dollarization globally will gradually weaken the dollar’s reserve currency status.

Recommended strategy: Gradually reduce dollar long positions and shift into undervalued non-US currencies (like yen, Australian dollar) or commodities (gold, copper).

Conclusion

Trading the dollar in 2025 will increasingly depend on data and event sensitivity. Only by maintaining flexibility and discipline in trading can investors capture excess returns amid significant exchange rate volatility.