2025 USD Trend Turning Point | Analyzing Global Capital Flows and Investment Deployment from the Perspective of the Rate Cut Cycle

By the end of 2024, the Federal Reserve officially begins to cut interest rates, which not only changes the attractiveness of the US dollar itself but also redefines the flow of global capital. According to the latest policy guidelines, the US aims to reduce interest rates to around 3% by 2026, signaling the emergence of a “New Era of the US dollar”—capital gradually shifting from traditional safe-haven assets like the dollar to high-yield assets, gold, and even cryptocurrencies.

But what’s truly noteworthy is that the forecast for the dollar’s movement is not simply “rate cuts lead to depreciation.” The complexity of this cycle lies in the fact that all major global currencies are lowering interest rates; who moves faster and by how much are the real factors determining exchange rate outcomes.

The Real Situation of the US Dollar as the Global Settlement Hub

The US dollar’s status as the world’s primary settlement currency stems from America’s long-term economic, political, and military advantages. However, this position is facing multiple challenges. Since 2022, the de-dollarization wave has become increasingly evident—countries are increasing gold reserves, promoting local currency settlements, and developing digital asset alternatives.

At the same time, the US’s own credit issues are weakening the dollar’s appeal. After abandoning the gold standard, the Federal Reserve’s monetary policies have affected global wealth distribution, which is why the Eurozone, the renminbi, crude oil futures, and virtual currencies are gradually eroding the dollar’s dominance.

However, it’s important to emphasize that as long as the US maintains its leadership in global politics, economy, and military strength, the dollar will not depreciate significantly. On the contrary, breakthroughs in innovative technology could continue to push the dollar higher.

The Four Major Drivers Behind the USD Exchange Rate

Interest Rate Policy: Expectations vs. Reality

Interest rate changes are the most direct drivers of the dollar’s exchange rate, but investors often make the mistake of only watching current rate hikes or cuts. In reality, the market has already priced in future policy changes.

The dot plot shows that the market does not wait for confirmed rate cuts before starting to weaken the dollar, nor does it wait for rate hikes to confirm before chasing the dollar higher. Smart capital always leads official announcements.

USD Supply: The Hidden Effects of QE and QT

Quantitative easing (QE) increases the supply of dollars, pushing down its value; quantitative tightening (QT) reduces supply, supporting dollar appreciation. However, these shifts often take time to be fully reflected in the market.

International Trade Structure: Deficits and Exchange Demand

The US has maintained a long-term trade deficit (imports greater than exports), which influences the supply and demand of the dollar. When imports increase, more dollars are needed for payments, supporting the dollar; when exports increase, dollar demand may decrease, leading to potential depreciation. These effects are usually long-term and not immediately apparent.

Global Confidence in the US

The dollar’s purchasing power ultimately depends on global trust in the US’s economic strength and political stability. When this confidence wavers, de-dollarization accelerates.

USD Forecast: Volatility Within a Weakening Trend in 1 Year

Based on current conditions:

Negative factors dominate: escalation of trade wars, ongoing de-dollarization, US policy uncertainties. These suggest a higher probability of the dollar index oscillating at high levels and then weakening.

However, risks cannot be entirely eliminated: if geopolitical crises or financial turmoil erupt, capital will rapidly flow back into the dollar. As the ultimate safe-haven asset, the dollar’s appeal during crises remains unmatched.

The most critical variable: the component currencies of the dollar index (Euro, Yen, Pound, etc.) are also beginning to cut rates. Who cuts faster and by how much will determine the relative strength of exchange rates. If the European Central Bank holds steady while the Fed continues to cut rates, the euro may appreciate and the dollar weaken relatively.

Therefore, the most likely future scenario for the dollar is a “range-bound oscillation at high levels followed by a gradual weakening,” rather than a sharp one-way depreciation.

Outlook for Major Currency Pairs Against the US Dollar

USD/JPY (US dollar to Japanese Yen)

Japan has ended its ultra-low interest rate environment, and capital is beginning to flow back into Japan. The Yen is expected to appreciate, putting downward pressure on USD/JPY.

TWD/USD (New Taiwan Dollar to US dollar)

Taiwan’s interest rate policy follows US movements, but domestic housing market considerations will constrain rate cuts. As an export-oriented economy, Taiwan prefers a weaker currency to boost sales. Overall, the TWD has potential to appreciate during the USD rate-cut cycle, but the magnitude will be moderate.

EUR/USD (Euro to US dollar)

Europe faces high inflation but weak growth. The euro has already strengthened against the dollar, but the European Central Bank’s future rate cut pace will be decisive. If Europe slows its rate cuts, the dollar’s relative weakness will be limited.

Chain Reactions of USD Movement on Different Assets

Gold Assets

When the dollar depreciates, gold benefits most. Gold is priced in USD, so a weaker dollar lowers the purchase cost and increases demand. Additionally, in a rate-cut environment, the opportunity cost of holding gold decreases, making it more attractive.

Stock Markets

A falling dollar often encourages capital inflows into stocks, especially tech and growth stocks. However, if the dollar weakens excessively, foreign investors might shift their funds to Europe, Japan, or emerging markets, reducing inflows into US equities.

Cryptocurrency Market

When the dollar’s purchasing power declines, investors seek alternative assets to hedge inflation. Bitcoin, as “digital gold,” is often viewed as a store of value during USD depreciation, global economic turbulence, or high inflation. From the perspective of USD trends, a weakening dollar generally favors crypto assets.

Practical Strategies to Capture USD Fluctuations

Every fluctuation in the USD exchange rate hides trading opportunities. In the short term, economic data releases such as CPI, employment reports, and central bank meeting minutes often cause significant volatility in the dollar index. Savvy traders can deploy positions in advance and enter at the right moments to seize these opportunities.

The key is understanding: the market always creates opportunities amid uncertainty, and uncertainty is the core feature the USD will face in 2025. Regardless of whether the dollar ultimately rises or falls, proactive positioning, continuous monitoring of policy changes, and flexible strategies are the best ways to navigate the unpredictability of USD movements.

Remember, geopolitical events, central bank decisions, and economic data—each change can be a trigger that reverses the trend.