The US dollar interest rate cut cycle begins, and the US dollar may fluctuate at high levels over the next year? Investors must watch out for these 3 major trading opportunities

By the end of 2024, the Federal Reserve launched its first rate cut. This seemingly simple policy shift is actually rewriting the global capital flow map and quietly changing every investor’s profit opportunities.

What does a rate cut mean? Simply put, the US government is releasing liquidity, making money cheaper. Where will the funds flow? To places that can offer higher returns—gold, cryptocurrencies, growth stocks. And the US dollar, the world’s primary settlement currency, is experiencing a subtle change in its status like never before.

According to the latest Fed dot plot forecast, the US dollar interest rate will gradually decrease to around 3% over the next three years. This not only affects the US market but also every foreign trade settlement and each central bank’s foreign exchange reserve allocation worldwide, all closely tied to the dollar’s movement.

Why might the dollar not necessarily fall straight after rate cuts?

Many people make the same mistake: seeing rate cuts and assuming the dollar will plummet. The reality is much more complex.

The US Dollar Index is not isolated. It is a basket composed of major currencies like the euro, yen, and pound. While the US is cutting rates, other countries’ central banks are also easing monetary policy. The key isn’t just the US rate cut alone, but who cuts faster and more aggressively.

For example: if the Eurozone hesitates to cut rates while the US accelerates its rate cuts, the euro’s attractiveness against the dollar will increase, and the dollar will weaken accordingly. Conversely, if all central banks cut rates simultaneously, the dollar’s relative advantage might be maintained.

This is why market professionals often say, it’s not enough to just watch the Fed’s policy; you need to observe the global central banks’ moves.

How deep will the dollar fall? Market signals reveal future trends

The dollar’s exchange rate over the past 50 years shows that every major turning point is accompanied by significant events:

• During the 2008 financial crisis, panic led to a frantic flight into the dollar, causing it to surge
• In 2020, during the pandemic, US money printing weakened the dollar temporarily, but economic recovery led to a strong rebound
• The aggressive rate hike cycle of 2022-2023 made the dollar dominant against most currencies, with the dollar index reaching a historic high of 114
• After the start of rate cuts in 2024, capital has begun shifting toward gold, cryptocurrencies, and other alternative assets

The current situation is not very friendly to the dollar. Escalating trade wars, stricter tariffs, and the ongoing de-dollarization wave worldwide are weakening the dollar’s appeal. But this doesn’t mean the dollar will only weaken in one direction.

The dollar has a deadly advantage: it remains the ultimate safe-haven asset. As geopolitical risks escalate or signs of a financial crisis appear, capital will flow back into the dollar first. Over the past 50 years, during every global crisis, the dollar has been the winner.

Therefore, the most likely trend for the USD index in the next year is oscillation at high levels followed by a gradual weakening, rather than a sharp plunge.

The real story behind dollar rate cuts: de-dollarization and confidence crisis

Many overlook a deeper issue: the US dollar’s dominance is being eroded.

Since the US abandoned the gold standard, the dollar’s credibility shifted from gold to the strength of the US economy and military power. But in recent years, economies like the EU, China, and Russia have actively promoted “de-dollarization.”

Specific manifestations include:

• The Eurozone establishing independent payment systems
• China launching yuan crude oil futures to bypass the dollar
• Multiple central banks shifting large reserves into gold rather than US Treasuries
• The rise of cryptocurrencies providing alternative value storage options outside the dollar

This de-dollarization wave accelerated after 2022, with many countries losing confidence in US debt. If this trend continues, the dollar’s liquidity could face a real test within the next five years.

This also explains why the Fed has become increasingly cautious in its rate decisions—they know that aggressive policies could further damage market confidence in the dollar.

Who benefits from rate cuts? Who gets hurt?

Gold will become the big winner

When the dollar weakens, gold almost always strengthens. Since gold is priced in dollars, a depreciating dollar reduces the cost of buying gold, increasing demand.

More importantly, during a rate-cut era, gold has no “interest loss” concerns. When yields on other assets decline, the relative attractiveness of gold as a non-yielding asset rises. That’s why every rate-cut cycle tends to push gold into a bull market.

Cryptocurrencies enter a new speculative cycle

Bitcoin is called “digital gold” for a reason. Rate cuts in the US mean declining yields on traditional assets, prompting capital to seek alternatives that hedge against inflation and currency depreciation.

In this context, the cryptocurrency market will regain attractiveness. Especially for young investors and institutions, allocating a certain proportion of assets to crypto has become the new normal.

US stocks face a “sweet dilemma”

Initially, rate cuts will stimulate capital inflows into stocks, especially tech and growth stocks. But if the dollar weakens too much, foreign investors might shift to Europe, Japan, or emerging markets, reducing the inflow into US stocks.

This means the rise of US stocks will be directly constrained by the dollar’s movement.

Currency pair outlook: future trends of major currencies

USD/JPY: Likely to weaken

Japan has just ended decades of ultra-low interest rates, and the central bank is gradually raising rates. This increases the yen’s attractiveness, and capital may flow back into Japan. It is expected that USD/JPY will face depreciation pressure in the next 1-2 years.

USD/TWD: Mild appreciation

Taiwan’s economy heavily depends on exports, and the government tends to keep the exchange rate competitive. Although the dollar is easing, Taiwan’s central bank will also adjust policies accordingly to maintain export advantages. The TWD is expected to appreciate mildly, but with limited scope.

EUR/USD: Short-term balance, long-term weakening

Europe’s economy is stuck in sluggish growth with still-high inflation. The European Central Bank will proceed cautiously with rate cuts, temporarily supporting the euro. But in the long run, if Europe’s economy remains weak, the euro’s relative strength will be hard to sustain. USD/EUR is expected to oscillate between 1.0 and 1.15.

How should investors respond? 3 practical opportunities

Opportunity 1: Short-term trading around rate announcement cycles

Every month’s CPI data release and every Fed meeting cause sharp fluctuations in the dollar index. Professional investors leverage these predictable events for short-term long or short positions, which is a relatively low-risk profit opportunity.

Opportunity 2: Currency pair arbitrage

Different currency pairs do not move in sync. When the dollar weakens overall, certain pairs (like EUR/USD, USD/JPY) will present special opportunities. Through comparative analysis, traders can identify undervalued or overvalued currency pairs for trading.

Opportunity 3: Asset rebalancing

The rate-cut cycle reduces the appeal of cash, making it an ideal window for reallocating into gold, cryptocurrencies, and stocks. Instead of trying to precisely predict the dollar’s movement, it’s better to pre-position assets that benefit from dollar depreciation.

Final reminder: Uncertainty itself is an opportunity

The full picture of the dollar’s rate cut cycle has not yet fully unfolded. Geopolitical risks can escalate at any time, and new black swan events may emerge in the global economy. These uncertainties seem risky but are actually opportunities for every investor.

As long as you study policies, track data, and keep rhythm, you can find your own profit opportunities amid dollar exchange rate fluctuations. Instead of passively watching, it’s better to prepare in advance.