Future Outlook of the US Dollar in the Next Ten Years: 2025 Exchange Rate Forecast and Investment Strategy Analysis

Basic Concepts of the US Dollar Exchange Rate

The essence of the US dollar exchange rate reflects the relative value between the dollar and other currencies. Taking EUR/USD as an example, this ratio indicates how many US dollars are needed to exchange for 1 euro. When this value rises from 1.04 to 1.09, it signifies euro appreciation and dollar depreciation; conversely, a decline indicates dollar strength.

The US Dollar Index is an important tool to measure the strength of the dollar, composed of a weighted average of six major international currencies (euro, yen, pound, Canadian dollar, Swedish krona, Swiss franc) against the US dollar. However, it should be noted that different countries’ central banks have varying policy tools; a Fed rate cut does not necessarily lead to a decline in the dollar index, and it is also necessary to observe whether other countries take supporting measures.

Current Situation and Short-term Trends of the US Dollar Index

Recently, the US dollar index has fallen for five consecutive days, hitting a new low since November (around 103.45), and breaking below the 200-day simple moving average, which is often interpreted as a bearish signal. The US employment data released in March was below expectations, reinforcing market expectations of multiple Fed rate cuts, which in turn lowered US Treasury yields and weakened the dollar’s attractiveness.

The Federal Reserve’s monetary policy is the core factor influencing the dollar’s movement. If the market continues to expect an accelerated pace of rate cuts, the dollar may remain under pressure; otherwise, a rebound could occur. Although there is a probability of a short-term rebound, the overall downward pressure remains significant. If the Fed proceeds with rate cuts and economic data continues to be weak, the dollar index could continue to decline in 2025, with support levels possibly falling below 102.00.

Based on technical and macro factors, the probability of the dollar index maintaining a weak trend in 2025 is relatively high, especially under oversold conditions and rate cut expectations. A short-term rebound may occur, but if easing policies continue in the medium to long term, the dollar faces further downside risks.

Historical Cycles of the US Dollar

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

1971-1980 Decline Period: The gold standard was abolished, and the dollar freely floated against gold, leading to a dollar glut. High inflation triggered by the oil crisis caused the dollar to decline, falling below 90.

1980-1985 Rise Period: Former Fed Chairman Paul Volcker aggressively fought inflation, raising the federal funds rate to 20%, then maintaining it at 8-10%, which strengthened the dollar to its peak in 1985.

1985-1995 Decline Period: The “dual deficits” of fiscal and trade deficits led the dollar into a prolonged bear market.

1995-2002 Rise Period: The internet revolution during Clinton’s era boosted the US economy, capital flowed back into the US, and the dollar index broke through 120.

2002-2010 Decline Period: The burst of the dot-com bubble, 9/11 attacks, quantitative easing, and the 2008 financial crisis caused the dollar to slide to lows around 60.

2011-2020 Early Rise Period: The European debt crisis and China’s stock market crash highlighted US advantages, with Fed rate hike expectations supporting the dollar rebound.

2020-2022 Early Decline: COVID-19 prompted the Fed to cut rates to zero, large-scale money printing stimulated the economy, and the dollar index plummeted, leading to severe inflation.

2022-2024 Decline: Uncontrolled inflation led the Fed to aggressively raise rates, with the federal funds rate reaching a 25-year high, and simultaneously implementing quantitative tightening. While inflation was contained, dollar confidence was challenged again.

Major Currency Pair Trends Forecast for 2025

EUR/USD (Euro/US Dollar) Trend Analysis

The euro and dollar exchange rate generally have an inverse relationship with the dollar index. Driven by dollar depreciation, improved ECB policies, and divergent economic expectations, if Fed rate cut expectations materialize, US economic slowdown, and European economic stability, EUR/USD is expected to continue rising.

Current trading data shows EUR/USD has risen to 1.0835, with a sustained upward trend. If this level stabilizes, psychological thresholds like 1.0900 may become the next target. Previous technical resistance and trendlines form strong support, with 1.0900 being a key resistance level. Breaking through this resistance could further expand gains.

GBP/USD (British Pound/US Dollar) Trend Analysis

The relationship between GBP and USD is similar to EUR/USD, with high correlation. Market expectations of a smaller rate cut by the Bank of England compared to the Fed support the pound. If the BOE adopts a cautious rate cut stance, GBP/USD will likely maintain relative strength, pushing the pair higher.

Technical indicators show positive signals, and in 2025, GBP/USD is likely to fluctuate upward within a core range of 1.25-1.35. Policy divergence and risk aversion are main drivers. If economic and policy divergence between the UK and US intensifies, the exchange rate may challenge highs above 1.40, but geopolitical risks and liquidity shocks could trigger corrections.

USD/CNH (US Dollar/Chinese Yuan) Trend Analysis

The USD/CNY is driven not only by market supply and demand but also closely linked to the economic policies of both countries. If the Fed continues to hike rates while China’s economy slows, the yuan may face pressure, and USD/CNH could rise.

The People’s Bank of China’s exchange rate policies and market guidance will influence the long-term trend of the yuan. If the PBOC adopts stronger intervention measures, it could alter the dollar’s direction. Technically, USD/CNH is currently trading in the 7.2300-7.2600 range, with no clear breakout in the short term. Investors should monitor breakouts in this range; once broken, new trading opportunities will emerge.

If the dollar falls below 7.2260 and technical indicators show oversold or rebound signals, it may present a short-term buying opportunity.

USD/JPY (US Dollar/Japanese Yen) Trend Analysis

USD/JPY is one of the most liquid currency pairs, with the dollar as the primary reserve currency and the yen ranking fourth. Japan’s January basic wage growth was 3.1% year-on-year, the highest in 32 years, indicating a possible shift in Japan’s long-term low inflation and low wage pattern. With rising wages and inflationary pressures, the Bank of Japan may adjust interest rates in the future to address currency depreciation concerns.

It is expected that USD/JPY will trend downward in 2025. Market expectations of rate cuts and Japan’s economic recovery will be the main trading drivers. Technical analysis shows that if USD/JPY breaks below 146.90, it may test new lows; reversing the downtrend requires breaking above 150.0 resistance.

AUD/USD (Australian Dollar/US Dollar) Trend Analysis

Australia’s Q4 GDP increased by 0.6% quarter-on-quarter and 1.3% year-on-year, both exceeding expectations. January trade surplus rose to 56.2 billion, indicating strong data and supporting the Australian dollar.

The Reserve Bank of Australia remains cautious, implying a low likelihood of rate cuts. Compared to other major economies, Australia may maintain a more hawkish stance, providing support for the AUD.

Although Australian data supports the AUD, the US dollar’s adjustment and global economic uncertainties remain factors to watch. If the Fed continues easing in 2025, a weaker dollar could boost AUD/USD.

2025 US Dollar Investment Opportunities Analysis

Short-term Strategy (Q1-Q2): Seek Swing Opportunities Amid Structural Volatility

Bullish factors: Escalating geopolitical conflicts may drive the dollar index rapidly toward 100-103; US economic data exceeding expectations (e.g., non-farm payrolls over 250,000) will delay rate cut expectations, prompting a dollar rebound.

Bearish factors: Continuous Fed rate cuts while the ECB remains dovish could strengthen the euro and push the dollar index below 95; worsening US debt issues may trigger dollar credit risk.

Operational advice: Aggressive investors can buy low and sell high within the 95-100 range of the dollar index, using technical indicators (such as MACD divergence, Fibonacci retracement) to catch reversals; conservative investors should wait and see until the Fed’s policy path becomes clearer.

Medium to Long-term Layout (Post-Q3): Slightly Reduce Dollar Holdings and Increase Non-US Assets

The deepening Fed rate cut cycle will narrow US Treasury yield advantages, leading funds to flow into high-growth emerging markets or recovering Eurozone. If de-dollarization accelerates globally (e.g., BRICS countries promoting local currency settlement), the dollar’s reserve currency status will weaken marginally.

Allocation suggestions: Gradually reduce dollar longs, and increase holdings of reasonably valued non-US currencies (yen, AUD) or commodities-linked assets (gold, copper, etc.).

The success or failure of USD trading in 2025 depends on “data-driven” and “event-sensitive” factors. Only by maintaining flexibility and discipline can one seize opportunities amid exchange rate fluctuations.