Will the US dollar fall? A comprehensive analysis of the 2025 US dollar trend and investment guide

Will the US Dollar Fall? Current Pressures Facing the Dollar

According to the latest market data, the answer to Will the US dollar fall is: short-term volatility, long-term pressure. The US Dollar Index has declined for five consecutive days, currently at its lowest since November (around 103.45), and has broken below the 200-day moving average, a typical bearish signal.

Market expectations for Fed rate cuts continue to rise. The US employment data released in March fell short of expectations, intensifying bets on multiple rate cuts, which caused US Treasury yields to fall and further weakened the dollar’s appeal. From a technical perspective, the oversold condition of the dollar combined with rate cut expectations all point to a potential further weakening.

However, it is important to note that Will the US dollar fall cannot be absolute. There remains a chance for a rebound in the short term, especially if geopolitical risks escalate or US economic data surpass expectations. But from a macro trend perspective, if the Federal Reserve continues to cut rates and economic data remains weak, the probability of the dollar continuing to decline into 2025 is higher.

Quick Opportunities to Trade USD Exchange Rate Fluctuations

Short-term Strategy (First Half of 2025): Structural Swing Trading

In the context of downward pressure on the dollar, investors can still use technical oscillations to capture opportunities:

When geopolitical tensions escalate or US non-farm payrolls exceed expectations, the dollar may surge briefly to the 100-103 range. Aggressive traders might consider shorting when clear bearish signals appear on the technical charts.

When the US Dollar Index oscillates between 95-100, using MACD divergence or Fibonacci retracement levels for buy low/sell high has a relatively high success rate. Conservative investors should mainly wait and see until the Fed’s policy direction becomes fully clear.

Mid- to Long-term Strategy (After the Second Half of 2025): Reduce USD Long Positions and Shift to Non-US Assets

As the Fed enters a rate-cutting cycle, the attractiveness of US debt yields will gradually decline. Funds may flow into high-growth emerging markets or opportunities arising from the Eurozone’s recovery. If the global trend of de-dollarization accelerates (e.g., BRICS countries increasing local currency settlements), the dominance of the dollar as a reserve currency will be marginally weakened.

Therefore, it is recommended to gradually reduce dollar long positions and reallocate to relatively undervalued non-US currencies or commodities-related assets.

The Formation Logic and Current Status of the US Dollar Index

What is the US Dollar Index

The US Dollar Index is a weighted composite of six major international currencies (Euro, Yen, Pound, Canadian Dollar, Swedish Krona, Swiss Franc) relative to the US dollar. A higher index indicates a stronger dollar against these currencies. It’s worth noting that Fed rate cuts do not necessarily lead to a decline in the dollar index—this depends on whether these other central banks also adopt easing policies. If the European Central Bank remains accommodative while the Fed cuts, the dollar could strengthen due to interest rate differentials.

Historical Cycle Analysis of the Dollar Index

Since the collapse of the Bretton Woods system in 1971, the dollar index has experienced eight distinct phases:

• 1971-1980: Nixon announces the end of the gold standard, dollar enters a flood period, compounded by oil crises and high inflation, pushing the index below 90.
• 1980-1985: Fed Chairman Volcker aggressively raises rates to 20%, then maintains 8-10%, pushing the dollar to a peak in 1985.
• 1985-1995: US faces “Twin Deficits” (fiscal and trade), leading to a long bear market.
• 1995-2002: During Clinton’s administration, internet-driven growth boosts the US economy, capital flows back, and the index hits 120.
• 2002-2010: Dot-com bubble burst, 9/11, quantitative easing, and the 2008 financial crisis cause the index to plunge to around 60.
• 2011-2020: Eurozone debt crisis, China stock crash, US relative stability, Fed rate hike expectations, and the dollar index rises again.
• 2020-2022: COVID-19 pandemic prompts zero interest rates and liquidity injections, causing the dollar to weaken sharply amid rising inflation.
• 2022-2024: Inflation spirals out of control, prompting the Fed to aggressively hike rates to 25-year highs and initiate quantitative tightening, which dampens dollar confidence.

2025 Outlook for Major Currency Pairs and the US Dollar

EUR/USD: Likely to Continue Rising

EUR/USD moves inversely to the dollar index. Under the combined effects of dollar depreciation, ECB policy improvements, and differing economic expectations, if the Fed indeed cuts rates while Europe’s economy improves, the euro is expected to further appreciate.

The latest trading price has risen to 1.0835, showing a continued upward momentum. If it stabilizes above this level, it may push toward key psychological levels like 1.0900. Technically, previous highs and trendlines could serve as strong support, with 1.0900 potentially acting as a significant resistance. Breaking above this resistance could further extend gains.

GBP/USD: Mainly Range-Bound with Volatility

GBP/USD, closely linked to the UK economy, shows similar patterns to EUR/USD. Market expectations suggest the Bank of England will cut rates more slowly than the Fed, providing support for the pound. A cautious rate cut approach means GBP may outperform USD in the near term.

Technical signals also look positive, with a high probability that GBP/USD will stay within the 1.25-1.35 range in 2025. Policy divergence and risk aversion are the main drivers. If UK and US economic paths diverge further, the exchange rate could surge above 1.40, but geopolitical risks and liquidity shocks could cause retracements.

USD/CNY: Range-Bound with Caution for Breakouts

USD/CNY is influenced by market supply/demand and US-China policy interactions. If the Fed continues rate hikes while China’s economy slows, the yuan may weaken, pushing USD/CNY higher. The People’s Bank of China’s exchange rate policies and market guidance will have a long-term impact. Strong interventions could alter the trend.

Technically, USD/CNY is currently trading between 7.2300 and 7.2600, with no clear short-term breakout momentum. Investors should watch for breakouts of this range. A break below 7.2260, with oversold signals on technical indicators, could present short-term buying opportunities.

USD/JPY: Facing Downward Pressure

USD/JPY is one of the most liquid currency pairs globally. Japan’s January wages rose 3.1% YoY, the highest in 32 years, indicating potential improvement in Japan’s long-standing low inflation and wages. Rising wages and inflation pressures may prompt the BOJ to adjust interest rates. International pressure, especially from the US, could accelerate rate hikes.

With rate cut expectations and Japan’s economic recovery, USD/JPY is expected to trend downward in 2025. Technical analysis shows that a break below 146.90 would test lower levels. To reverse this downtrend, a break above 150.0 resistance is needed.

AUD/USD: Supported by Favorable Factors

Australia’s Q4 GDP grew 0.6% QoQ and 1.3% YoY, both above expectations. January’s trade surplus hit 56.2 billion AUD, a strong figure. These data support the AUD’s strength. The Reserve Bank of Australia remains cautious, implying a low likelihood of rate cuts soon. In the context of global easing, this stance appears relatively hawkish, supporting the AUD.

Despite solid data, the AUD/USD will also be influenced by US dollar adjustments and global economic uncertainties. If the Fed continues easing in 2025, a weaker dollar will boost AUD/USD.

Basic Concepts for Understanding USD Exchange Rates

What is an Exchange Rate

An exchange rate indicates how much of a currency is needed to buy one US dollar. For example, EUR/USD=1.04 means 1.04 USD equals 1 euro. If it rises to 1.09, the euro has appreciated and the dollar depreciated; if it falls to 0.88, the euro depreciates and the dollar appreciates.

Difference Between the Dollar Index and Single Currency Pairs

The dollar index is a composite indicator reflecting the dollar’s strength against a basket of major currencies. Single currency pairs like EUR/USD only show the relative value between two currencies. A decline in the dollar index does not necessarily mean all dollar pairs weaken—this depends on whether other central banks also ease monetary policy simultaneously.

Overall Outlook and Investment Insights

Based on technical analysis, macroeconomic factors, and market expectations, the answer to Will the US dollar fall is: a long-term downward trend with short-term fluctuations. It is expected that the dollar index may remain bearish into 2025, especially under oversold conditions and rate cut expectations. Short-term rebounds are possible, but if the Fed continues easing and economic data remains weak, the dollar could further decline below 102.00.

Maintaining flexibility and discipline is key. USD trading increasingly depends on “data-driven” and “event-sensitive” factors. Investors should closely monitor Fed signals, US economic data, and geopolitical developments to seize genuine trading opportunities amid dollar volatility.