How will the US dollar exchange rate evolve in 2025? Multi-currency trend analysis and trading strategies

The Core Logic of the US Dollar Exchange Rate

The essence of the US dollar exchange rate reflects the relative value of the US dollar against other currencies. Taking EUR/USD as an example, a quote of 1.04 means that 1 euro requires 1.04 US dollars to exchange. When this number rises to 1.09, it indicates euro appreciation and dollar depreciation; conversely, a drop to 0.88 suggests euro depreciation and dollar appreciation.

The US Dollar Index (DXY) is based on the US dollar, incorporating a weighted average of six major currencies: euro, yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Fluctuations in this index directly reflect the strength of the dollar relative to these currencies. It’s important to note that central bank policies vary across countries, so a rate cut by the Federal Reserve does not necessarily lead to a decline in the dollar index; other member countries’ measures must also be considered.

What’s Next for the US Dollar? Technical and Fundamental Resonance

In the past five trading days, the US dollar has continuously declined, with the dollar index falling to around 103.45, a recent low, and effectively breaking below the 200-day moving average — typically seen as a bearish signal in technical analysis.

Fundamentally, the situation is clear: US employment data in March underperformed expectations, reinforcing market expectations of multiple rate cuts by the Fed. As these expectations heat up, US Treasury yields decline, weakening the attractiveness of dollar investments.

Looking ahead to 2025, the dollar index faces three pressures: first, the direction of the Fed’s monetary policy easing; second, downward revisions of growth expectations due to weak economic data; third, the risk of technical rebounds amid current oversold conditions. Overall, the dollar index is likely to maintain a bearish trend, with potential further testing of support levels below 102. Short-term rebounds are possible but unlikely to change the long-term weakness.

The 30-Year Historic Cycle of the US Dollar

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

First wave (1971-1980): The gold standard disintegrated, and the dollar entered a depreciation phase. Nixon abandoned the gold peg, followed by a global oil crisis that pushed inflation higher, causing the dollar index to bottom below 90.

Second wave (1980-1985): Fed Chair Volcker responded to stagflation with aggressive measures, raising the federal funds rate to a historic high of 20%, then maintaining it at 8-10%. The dollar index strengthened into a bull market peak in 1985.

Third wave (1985-1995): The US faced twin deficits (fiscal and trade), leading to a decade-long bear market for the dollar.

Fourth wave (1995-2002): During the dot-com bubble, under Clinton’s leadership, the US economy soared, capital flowed back into the US, and the dollar index reached a bull market peak of 120.

Fifth wave (2002-2010): The burst of the dot-com bubble, 9/11, and the 2008 financial crisis, combined with Fed quantitative easing, caused the dollar index to hover around 60 at times.

Sixth wave (2011-2020 early): During the European debt crisis and China’s stock market crash, the US remained relatively stable. The Fed signaled multiple rate hikes, strengthening the dollar index.

Seventh wave (2020 early-2022 early): The COVID-19 pandemic led to unprecedented liquidity injections (rates cut to 0%, massive money printing), causing the dollar to plummet and global inflation to ignite.

Eighth wave (2022 early-2024 end): Inflation spiraled out of control, prompting the Fed to aggressively raise rates to a 25-year high and initiate QT (balance sheet reduction). While successful in curbing prices, market confidence in the dollar weakened.

The 2025 Outlook: US Dollar vs. Major Currencies

EUR/USD: Uptrend Likely to Continue

EUR/USD and the dollar index usually move inversely. If Fed rate cuts materialize and US economic growth slows, while the European Central Bank’s policy environment improves and Europe recovers, the euro will gain support.

Latest data shows EUR/USD has risen to 1.0835, demonstrating sustained upward momentum. If it stabilizes here, breaking through the psychological barrier at 1.0900 is not unlikely. Technically, previous highs and trendlines may provide strong support, with 1.0900 serving as a key resistance. A breakout above this level could accelerate euro appreciation.

GBP/USD: Clear Volatility Range

The UK economy is closely linked to the US, and GBP’s movement is similar to EUR. Market expects the Bank of England to cut rates more slowly than the Fed, providing relative support for GBP. If the BoE adopts a more conservative stance, GBP/USD may stay in an upward oscillation between 1.25 and 1.35 in 2025. Policy divergence and risk aversion are main drivers. If economic paths diverge further, GBP could challenge highs above 1.40, but political risks and liquidity shocks may cause corrections.

USD/CNY: Range-Bound Consolidation

USD/CNY is influenced by market supply and demand, as well as US-China policy expectations. Continued Fed rate hikes and China’s economic slowdown pressure the yuan, pushing USD/CNH higher. Meanwhile, China’s central bank’s exchange rate policies also have long-term impacts.

Technically, USD remains in a sideways range between 7.2300 and 7.2600, with short-term momentum lacking for a breakout. Investors should watch for a breakout of this range — a confirmed move could generate new trading opportunities. A break below 7.2260 with oversold reversal signals may indicate a short-term rebound.

USD/JPY: Downward Pressure Increasing

USD/JPY is one of the most liquid currency pairs globally. Japan’s January average wages rose 3.1% YoY, a 32-year high, reflecting an economic shift away from long-term deflation and low wages. Rising wages and inflation expectations may accelerate the Bank of Japan’s rate hike pace. Geopolitical tensions could further hasten Japan’s monetary normalization.

Forecast for 2025: USD/JPY faces downside risk. Expectations of rate cuts and Japan’s economic recovery will be key themes. Technically, a break below 146.90 increases the risk of testing lower lows; reversing the downtrend requires a break above 150.0 resistance.

AUD/USD: Solid Fundamental Support

Australia’s Q4 GDP grew 0.6% QoQ and 1.3% YoY, both exceeding expectations. January’s trade surplus rose to 56.2 billion AUD, indicating strong fundamentals. The Reserve Bank of Australia remains cautious, hinting at a low likelihood of rate cuts, supporting the AUD.

Despite strong data, if the Fed adopts easing policies in 2025, a weaker dollar could boost AUD/USD. Global economic uncertainties still warrant caution.

How to Capture USD Trading Opportunities in 2025

Short-term Strategy (Q1-Q2): Range Trading in Structural Volatility

Bullish Scenario: Escalation of geopolitical conflicts (e.g., Taiwan Strait tensions) could cause the dollar index to rebound quickly to 100-103; US economic data exceeding expectations (e.g., non-farm payrolls adding over 250,000 jobs) may delay rate cuts, supporting the dollar.

Bearish Scenario: Continuous Fed rate cuts with delayed ECB policy improvements could strengthen the euro and push the dollar index below 95; US Treasury supply pressures (difficult auctions) might trigger rising dollar credit risk.

Aggressive traders can consider high sell and low buy within the 95-100 range, using MACD divergence, Fibonacci retracement, and other technical signals for reversal entries. Conservative investors should wait for clearer Fed policy signals.

Medium-Long Term Strategy (Post-Q3): Gradually Reduce Dollar Holdings and Shift to Non-US Assets

As the Fed’s rate cut cycle deepens, US Treasury yields will decline, and capital may flow into emerging markets or the Eurozone with stronger growth prospects. The de-dollarization trend accelerates (e.g., BRICS countries promoting local currency settlements), marginally weakening the dollar’s reserve currency status.

Countermeasures: Gradually reduce dollar long positions, increase holdings of reasonably valued non-US currencies (yen, AUD) or commodities-related assets (gold, copper).

Conclusion

The USD outlook for 2025 will increasingly depend on “data-driven” and “event-sensitive” factors. Only by maintaining flexibility and discipline in trading can investors capture excess returns amid dollar fluctuations. The market always rewards those who have a framework but can adapt dynamically.