Will the US dollar weaken in 2025? A comprehensive analysis of the US dollar exchange rate outlook and investment opportunities

Will the US dollar fall? Understanding the core logic of the USD exchange rate first

To judge whether the dollar will rise or fall, you must first understand what the USD exchange rate means. The so-called USD exchange rate is the value ratio of a certain currency relative to the US dollar. Taking EUR/USD as an example, an exchange rate of 1.04 means 1 euro requires 1.04 dollars to exchange; if it rises to 1.09, it indicates the euro has appreciated and the dollar has depreciated; conversely, a drop to 0.88 means the euro has depreciated and the dollar has appreciated.

The US dollar index is more intuitive—it is compiled based on the weighted exchange rates of six major currencies against the US dollar: euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The level of the dollar index reflects the strength or weakness of the dollar relative to these currencies. It’s important to note that changes in Federal Reserve policies do not necessarily directly correspond to the rise or fall of the dollar index; other central banks’ measures also matter.

Will the US dollar fall? Technical signals are clear

Recent market performance shows the dollar indeed exhibits weakness. The dollar index has fallen for five consecutive trading days, reaching a low since November (around 103.45), and has broken below the 200-day simple moving average—often interpreted as a bearish signal in technical analysis.

The US employment data released on March 7 fell short of expectations, directly reinforcing market expectations of an upcoming rate cut cycle by the Fed. Expectations of rate cuts lead to falling US Treasury yields, which in turn weaken the dollar’s attractiveness to international capital. It can be said that the Fed’s monetary policy has become a key variable in determining the dollar’s direction—if a rate cut path is confirmed, the probability of dollar weakness will significantly increase.

Although there may be short-term technical rebounds, the overall trend still suppresses the dollar. If the Fed continues to cut rates and economic data remains weak, the dollar is likely to remain weak into 2025. Based on technical, macro, and market expectations, the dollar index may maintain a bearish stance over a longer period, especially when the market is oversold and rate cut expectations are strong. If these conditions persist, the dollar index could even test support levels below 102.00.

Looking at historical cycles: the “rise and fall cycle” of the dollar

To accurately predict the future of the dollar, it’s essential to review its past cyclical fluctuations. Since the collapse of the Bretton Woods system in the 1970s, the dollar index has gone through eight distinct phases:

Phase 1 (1971-1980): Decline period
Nixon announced the end of the gold standard, and the gold-dollar exchange rate began to float freely, leading to an oversupply of dollars. The subsequent oil crisis and high inflation caused the dollar to slide below 90.

Phase 2 (1980-1985): Rebound period
Former Fed Chairman Paul Volcker aggressively fought inflation, raising the federal funds rate to 20%, maintaining high levels of 8-10%. Under high interest rates, the dollar index strengthened continuously, peaking in 1985.

Phase 3 (1985-1995): Long-term decline
The US faced “dual deficits” (fiscal and trade deficits widening simultaneously), and the dollar entered a prolonged bear market.

Phase 4 (1995-2002): Emerging industry boom
During Clinton’s era, the US entered the internet boom, with strong economic growth attracting global capital back, pushing the dollar index to a high of 120.

Phase 5 (2002-2010): Crisis abyss
The dot-com bubble burst, followed by 9/11 and prolonged quantitative easing. The 2008 financial crisis shattered market confidence. The dollar continued to decline, reaching a historic low around 60.

Phase 6 (2011-2020 early): Relative strength period
During the European debt crisis and China’s stock market crash, the US economy remained relatively stable, and the Fed signaled rate hikes, strengthening the dollar index.

Phase 7 (2020 early-2022 early): Pandemic shock
COVID-19 outbreak led the Fed to cut rates to 0% and print money massively, causing the dollar index to plunge, followed by severe inflation.

Phase 8 (2022 early-2024): Tightening pressure
Inflation spiraled out of control, forcing the Fed to aggressively raise rates to a 25-year high and initiate quantitative tightening (QT). While inflation was curbed, confidence in the dollar was challenged again.

This history clearly shows that the long-term trend of the dollar is closely related to US economic cycles and Federal policies.

Will the dollar fall in 2025? Multi-angle forecasts provide answers

Based on the US economic outlook, international political situations, and divergence in major central bank policies, the outlook for the dollar in 2025 is not fixed but shows structural divergence.

Relative to the euro: Weakness likely to persist
EUR/USD moves almost inversely to the dollar index. Dollar depreciation combined with improvements in ECB policies and economic outlook could push the euro higher. If the Fed’s rate cut path materializes, US economy slows, and Europe’s economy improves synchronously, EUR/USD could continue rising.

Latest trading data shows EUR/USD has risen to 1.0835, demonstrating a clear upward trend. Once stabilized at this level, breaking the psychological threshold of 1.0900 becomes more likely. Technical analysis indicates that previous highs and trendlines form solid support levels, with 1.0900 as a key resistance. Breaking this resistance could further open the upside.

Relative to the British pound: Policy divergence is key
The UK economy is closely linked to the US, so GBP/USD has similarities with EUR/USD. Market expectations suggest the Bank of England (BoE) will slow its rate cuts compared to the Fed, supporting the pound. If BoE adopts a cautious rate cut approach, GBP will be relatively stronger against the dollar, pushing GBP/USD higher.

Multiple technical signals support this view. In 2025, GBP/USD is likely to maintain an upward trend, with a core trading range of 1.25-1.35. Policy divergence and risk aversion will be main drivers. If the economic and policy paths of the US and UK further diverge, the exchange rate might challenge highs above 1.40, but political risks and liquidity shocks could cause mid-term pullbacks.

Relative to the Chinese yuan: Policy intervention has deep influence
USD/CNH is affected by market supply and demand as well as China-US economic policies. If the Fed continues to hike rates while China’s economy slows, the yuan will face depreciation pressure, pushing USD/CNH higher. The People’s Bank of China’s exchange rate policies and market guidance will also have long-term impacts—if the central bank intervenes more actively, it could alter the dollar’s unilateral trend.

Technically, USD/RMB is currently consolidating between 7.2300 and 7.2600, with limited short-term momentum. Investors should watch for a breakout of this range; a clear break could signal new trading opportunities. If the dollar falls below 7.2260 and technical indicators show oversold or rebound signals, it may be a short-term buy point for a rebound.

Relative to the Japanese yen: Japan’s economic recovery brings surprises
USD/JPY is one of the most traded currency pairs globally, with the dollar as the world’s primary reserve currency and the yen ranking fourth. Japan’s January average wages rose 3.1% year-on-year, reaching the highest increase in 32 years, indicating Japan is shaking off its long-term low inflation and low wage issues.

With rising wages and potential inflation pressures, the Bank of Japan may adjust interest rates in 2025 to address market concerns over yen depreciation. International pressure (especially from the US) might accelerate rate hikes. This would put downward pressure on USD/JPY.

Forecasts suggest USD/JPY will trend downward in 2025. Expectations of rate cuts and Japan’s economic recovery will be key drivers. Technical analysis shows that if USD/JPY falls below 146.90, it could test lower lows; reversing the current downtrend would require breaking resistance at 150.0.

Relative to the Australian dollar: Strong data provides support
Australia’s latest economic data are impressive: Q4 GDP grew 0.6% quarter-on-quarter and 1.3% year-on-year, both exceeding expectations; January trade surplus rose to 56.2 billion. These figures support a stronger AUD.

The Reserve Bank of Australia (RBA) remains cautious, hinting at limited room for future rate cuts. Compared to other major central banks, Australia may continue a relatively hawkish stance, supporting the AUD. Despite strong data, potential US dollar adjustments and global economic uncertainties remain. If the Fed continues easing in 2025, dollar weakness will boost AUD/USD.

Will the dollar fall? How should investors respond

Short-term strategies (Q1-Q2 2025):
Look for opportunities amid structural volatility.
Bullish scenarios include: escalating geopolitical conflicts (e.g., Taiwan Strait tensions) pushing the dollar index rapidly to 100-103; US economic data exceeding expectations (e.g., non-farm payrolls adding over 250,000 jobs) delaying rate cuts and causing a dollar rebound.

Bearish scenarios include: continuous Fed rate cuts while ECB remains dovish, strengthening the euro and pushing the dollar index below 95; worsening US debt crisis leading to cold US Treasury auctions and rising dollar credit risk.

Aggressive investors can consider high-low trading within the 95-100 range, using MACD divergence and Fibonacci retracements to catch reversal signals. Conservative investors should wait for clearer Fed policy signals, adopting a wait-and-see approach.

Mid-to-long-term strategies (post Q3 2025):
Gradually shift towards non-dollar assets.
As the Fed’s easing cycle deepens, US Treasury yields’ relative advantage diminishes, and capital may flow from dollars to emerging markets and the eurozone. Accelerating de-dollarization globally (e.g., BRICS promoting local currency settlement) could marginally weaken the dollar’s reserve currency status.

Investors should reduce dollar long positions gradually, reallocating to reasonably valued non-US currencies (like yen, AUD) or commodities (gold, copper). In 2025, dollar trading will become more data-driven and event-sensitive; maintaining flexibility and discipline is key to capturing excess returns amid exchange rate fluctuations.