How will the US dollar exchange rate move in 2025? Future trends based on historical cycles

The US dollar’s trend will become a market focus in 2025. Currently, the US Dollar Index has been falling consecutively to around 103.45, breaking below the 200-day moving average, presenting a typical bearish signal. What is the logic behind this? Let’s analyze from the perspective of the dollar’s historical cycles and current fundamentals.

The Eight Cycles of the US Dollar

Over more than 50 years since the collapse of the Bretton Woods system, the US Dollar Index has experienced eight distinct bullish and bearish cycles, each reflecting changes in the global economic landscape.

1971-1980: The Flood Period: Nixon announced the end of the gold standard, the dollar was decoupled from gold and floated freely. Coupled with the oil crisis and high inflation, the dollar index gradually declined below 90.

1980-1985: The Strength Period: Fed Chairman Volcker aggressively raised the federal funds rate to 20%, curbing inflation. The dollar soared to historic highs, sparking a dollar bull market.

1985-1995: The Recession Period: The US faced simultaneous fiscal and trade deficits, marking a “dual deficit” era. The dollar entered a prolonged bear market lasting about ten years.

1995-2002: The Revival Period: The internet boom surged, and during Clinton’s era, the US economy grew strongly, attracting capital inflows. The dollar index reached a high of 120.

2002-2010: The Collapse Period: The dot-com bubble burst, 9/11, and the financial crisis hit hard. Quantitative easing by the Fed pushed the dollar to lows around 60.

2011-2020 Early: The Rebound Period: The European debt crisis and China’s stock market crash made the US seem more stable. Multiple rate hikes by the Fed led to a long dollar rally.

2020-2022 Early: The Depreciation Period: COVID-19 pandemic struck, the Fed cut rates to zero and printed money aggressively. The dollar index plunged sharply, and inflation surged.

2022 Early - End of 2024: The Volatility Period: Inflation spiraled out of control, prompting the Fed to aggressively raise rates to a 25-year high and start quantitative tightening. The dollar rebounded temporarily but faced long-term pressure.

These eight cycles reveal a core truth: The dollar’s movement is closely linked to Fed policies, US economic performance, and global capital flows.

Current Technical and Fundamental Outlook for the Dollar Index

Technical Bearish Signals

The dollar index near 103.45 has broken below the key 200-day moving average. In technical analysis, this often signals a trend reversal. Recent US employment data (released on March 7) fell short of expectations, reinforcing market expectations of multiple rate cuts by the Fed.

Once rate cut expectations rise, US Treasury yields tend to decline, attracting further dollar selling. Historically, when yield advantage diminishes, the dollar loses its primary appeal.

Policy Divergence

The Fed’s policy stance is crucial. If a rate cut cycle indeed begins in 2025, the dollar will face sustained pressure. However, in the short term, a rebound is possible—if economic data exceeds expectations or geopolitical risks increase, safe-haven flows could return to the US, causing a quick dollar rebound.

Overall, it is expected that the US Dollar Index may remain volatile at low levels in 2025, with further downside targets possibly below 102.00.

Major Currency Pair Predictions for 2025

EUR/USD: Likely to continue strengthening

Expectations of dollar depreciation and improving European economic prospects are jointly supporting the euro. The latest quote EUR/USD has risen to 1.0835, showing a clear upward trend.

If the euro stabilizes at this level, the next target is the psychological barrier at 1.0900. On the technical side, previous highs will serve as strong support. Breaking above 1.0900 would open room for further gains.

Forecast Range: 1.0800-1.0950

GBP/USD: Range-bound upward trend

The Bank of England is expected to slow its rate cuts compared to the Fed, providing relative support for the pound. Meanwhile, divergence in economic policies between the UK and US will be a key driver for GBP strength.

Technically, GBP/USD is trading within the 1.25-1.35 range. If policy divergence intensifies, the pair could challenge above 1.40. However, political risks and liquidity shocks could cause retracements.

Forecast Range: 1.2500-1.4000

USD/CNY: High-level consolidation, lack of breakout momentum

USD/CNY currently trades within 7.2300-7.2600, lacking clear direction in the short term. This reflects tensions between US and Chinese economic policies and central bank stances.

If the Fed continues to hike rates while China’s economy slows, the yuan may weaken, pushing USD/CNY higher. Conversely, if China stabilizes, a correction is possible. From a technical perspective, a break below 7.2260 combined with RSI oversold signals could present a buying opportunity.

Forecast Range: 7.2000-7.3000

USD/JPY: Downward trend emerging

Japan’s economy is changing. January’s nominal wage growth rose 3.1% year-over-year, the highest in 32 years. This suggests increasing pressure on the Bank of Japan to raise interest rates, narrowing the Japan-US yield spread, which weighs on USD/JPY.

Technically, a break below 146.90 would test lower support levels. To reverse the downtrend, a move above 150.0 is needed. With rising expectations of Japanese rate hikes, this pair may trend downward throughout the year.

Forecast Range: 140.00-150.00

AUD/USD: Strong data supports rally

Australia’s economic data remains robust—Q4 GDP exceeded expectations, and January’s trade surplus reached 56.2 billion. Meanwhile, the RBA remains cautious, hinting at little chance of immediate rate cuts, which appears quite “hawkish” amid global easing.

In the environment of Fed easing and a weakening dollar, the AUD benefits. AUD/USD is expected to continue rising.

Forecast Range: 0.6200-0.6600

Practical Strategies for USD Investment in 2025

Short-term (Q1-Q2): Focus on swing trading

Bullish opportunities: Geopolitical tensions (e.g., Taiwan Strait) could trigger safe-haven buying, pushing the dollar index to 100-103. Strong US non-farm payrolls (adding over 250,000 jobs) would delay rate cut expectations, supporting a rebound.

Bearish opportunities: Continued Fed rate cuts and lagging ECB policies could strengthen the euro, pushing the dollar index below 95. Weak US Treasury auctions or rising debt risks could also undermine confidence in the dollar.

Specific tactics: Aggressive traders can buy low and sell high within the 95-100 range, using MACD divergence, Fibonacci retracements, and other technical signals to catch reversals. Conservative investors should wait for clearer Fed signals.

Medium to long-term (Q3 onward): Reduce dollar holdings, diversify into non-US assets

As the rate cut cycle deepens, US Treasury yield advantages diminish, prompting capital flows into high-growth emerging markets or the Eurozone. If de-dollarization accelerates (e.g., BRICS countries promoting local currency settlements), the dollar’s reserve currency status will weaken further.

Allocation advice: Gradually reduce dollar long positions, and shift into yen, Australian dollar, or other reasonably valued non-US currencies, or allocate to gold, copper, and other commodities to hedge against dollar depreciation.

Core Summary

The key factors influencing the dollar’s trend in 2025 are Fed policies and US economic performance. While short-term trading opportunities exist, the medium to long-term outlook points to dollar depreciation pressure. Only by staying flexible and responding to data and events can investors capture excess returns amid dollar fluctuations.

Whether for short-term trading or long-term allocation, understanding the dollar’s historical cycles and grasping current technical and fundamental signals are the keys to winning in this unpredictable year.