What is the outlook for the US dollar exchange rate in 2025? Analysis of the prospects for major global currency pairs

Basic Understanding of USD to CNY Exchange Rate

Exchange rate is an important indicator to measure the exchange relationship between two currencies. Taking EUR/USD as an example, if the exchange rate is 1.04, it means 1.04 USD is needed to exchange for 1 Euro; if this ratio rises to 1.09, it indicates Euro appreciation and USD depreciation; conversely, a drop to 0.88 suggests Euro depreciation and USD appreciation.

The US Dollar Index is a key tool to measure the relative strength of the US dollar, calculated as a weighted index of the exchange rates of the dollar against six major currencies: euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc. The higher the index value, the stronger the dollar; the lower the value, the weaker the dollar. It is important to note that the movement of the US Dollar Index depends not only on Federal Reserve policies but also on whether the policies of the central banks of the component currencies’ countries align with the dollar’s trend.

Current Status and Short-term Outlook of the US Dollar Index

As of recent, the US Dollar Index is at a low since November (around 103.45), with five consecutive trading days of decline, breaking below the 200-day simple moving average, which is often seen as a technical bearish signal.

The release of US employment data below expectations directly impacted market sentiment. This has driven market expectations for further Fed rate cuts, leading to a decline in Treasury yields and weakening the dollar’s appeal as a safe-haven asset.

The direction of Federal Reserve monetary policy is crucial for the dollar’s trend. If the market continues to price in more rate cut cycles, the dollar may remain weak; conversely, a reversal could occur. Although there is a short-term possibility of technical rebounds, the overall downward pressure remains evident. If the Fed implements multiple rate cuts and US economic data continues to be weak, the US Dollar Index may continue to be under pressure in 2025, with support levels possibly falling below 102.00.

USD to CNY and Historical Cycle Review

Since the collapse of the Bretton Woods system in 1971, the US Dollar Index has experienced eight distinct cycle phases:

1971-1980 Recession Period: After the gold standard was abandoned, the dollar flooded the market, compounded by the oil crisis and high inflation, causing the dollar index to fall below 90.

1980-1985 Bullish Period: Fed Chairman Paul Volcker raised interest rates sharply to 20%, maintaining high rates of 8-10%, pushing the dollar index to historic highs.

1985-1995 Adjustment Period: Under the “dual deficits” of US fiscal and trade deficits, the dollar entered a long-term bear market.

1995-2002 Revival Period: The internet boom drove strong US economic growth, with net capital inflows pushing the dollar index to 120.

2002-2010 Weakening Period: The burst of the internet bubble, 9/11 attacks, and the long-term quantitative easing policy led to the 2008 financial crisis, causing the dollar to plunge to near 60.

2011-2020 Early Recovery Period: Amid European debt crisis and Chinese stock market crash, the US remained relatively stable, with multiple Fed rate hikes strengthening the dollar.

2020 Early-2022 Decline Period: COVID-19 pandemic led to zero interest rates and unlimited QE, triggering inflation and a sharp decline in the dollar index.

2022 Early-2024 New Cycle: The Fed aggressively raised interest rates to a 25-year high and started QT, suppressing inflation but challenging dollar confidence again.

Outlook for USD against CNY and Other Major Currencies Before 2025

USD to CNY Trend Analysis

The USD/CNY exchange rate is influenced by multiple factors including US-China economic policies and market supply and demand. If the Fed maintains a tightening stance while China’s economic growth slows, the USD/CNY may face upward pressure.

The People’s Bank of China’s exchange rate policy orientation and market guidance will have long-term impacts. Central bank interventions could directly alter the pace of RMB movement.

Technically, USD/CNY may continue to fluctuate within the 7.2300-7.2600 range, with no clear breakout in the short term. A break below 7.2260 support, combined with oversold technical indicators, could present a short-term buying opportunity for a rebound.

EUR/USD Outlook

EUR/USD shows a high negative correlation with the US Dollar Index. Driven by USD depreciation, ECB policy easing, and differing economic expectations, if Fed rate cut expectations materialize and US economy slows, while Europe continues recovery, the euro could oscillate higher.

Recent data shows EUR/USD rising to 1.0835, demonstrating a sustained upward trend. If this level stabilizes, breaking through the psychological threshold of 1.0900 becomes more likely. On the technical side, previous highs and trendlines may provide support, while the 1.0900 level acts as a key resistance.

GBP/USD Outlook

The UK economy is closely linked to the US, and GBP/USD’s trend is similar to EUR/USD. Market expects the Bank of England to slow its rate cuts compared to the Fed, providing relative support for the pound. If the BoE adopts a cautious rate cut approach, GBP may remain relatively strong against the dollar.

Technical indicators are positive, and in 2025, GBP/USD is likely to maintain a range of 1.25-1.35 with oscillating upward momentum, driven mainly by policy divergence and risk aversion. Further divergence in UK and US economic policies could challenge the 1.40 level, but political risks and liquidity shocks should be watched for potential pullbacks.

USD/JPY Outlook

USD/JPY is one of the most liquid currency pairs globally. Japan’s January basic wage growth rose 3.1% year-on-year, the highest in 32 years, indicating a possible breakthrough from long-term low inflation and low wages. Rising wages and potential inflation pressures may prompt the Bank of Japan to adjust its interest rate policy. International pressure, especially from the US, could accelerate rate hikes.

By 2025, USD/JPY is expected to trend downward. 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 levels; reversing the current downtrend would require breaking through the 150.0 resistance.

AUD/USD Outlook

Australia’s Q4 GDP grew 0.6% quarter-on-quarter and 1.3% year-on-year, both exceeding market expectations. January trade surplus rose to 56.2 billion yuan, supporting the Australian dollar.

The Reserve Bank of Australia remains cautious, indicating a low likelihood of rate cuts, which suggests Australia may maintain a relatively positive monetary policy stance among major economies, providing support for the AUD.

Despite strong data, potential technical adjustments in the US dollar and global economic uncertainties remain. If the Fed continues easing in 2025, a weaker dollar could boost AUD/USD.

2025 USD Trading Strategy Guide

Short-term Strategy (Q1-Q2): Range Trading to Capture Reversals

Bullish Scenario: Escalating geopolitical conflicts could push the dollar index to 100-103; US economic data exceeding expectations (e.g., non-farm payrolls > 250,000) will delay rate cut pricing, leading to a dollar rebound.

Bearish Scenario: Continuous Fed rate cuts and delayed ECB easing could strengthen the euro, with the dollar index falling below 95; rising US debt risks may impact dollar credibility.

Trading Advice: Aggressive traders can buy low and sell high within the 95-100 range of the dollar index, using technical signals (MACD divergence, Fibonacci retracement) to catch reversals; conservative investors should wait for clearer Fed policy signals.

Mid- to Long-term Strategy (Post-Q3): Allocate to Non-USD Assets

As the Fed deepens rate cuts, US Treasury yields will decline, and capital may flow into high-growth emerging markets or recovering Eurozone assets. The global de-dollarization trend may weaken the dollar’s reserve currency status.

Suggested directions: Gradually reduce USD long positions, and shift to currencies like JPY, AUD, or assets linked to commodities (gold, copper).

Success in USD trading in 2025 depends on maintaining data-driven flexibility and event sensitivity. Only with adaptability and discipline can one achieve excess returns amid exchange rate fluctuations.