What will happen to the US dollar in 2025? A comprehensive overview of multi-currency exchange rate trends and investment strategies

Current Symptoms of the US Dollar Trend: Signals Behind Five Consecutive Days of Decline

The US Dollar Index has fallen for five consecutive days, currently at its lowest point since November, hovering around 103.45. More notably, the Dollar Index has just broken below the 200-day moving average—typically a sign of potential further significant downside pressure.

The US employment data released on March 7th fell short of expectations, directly prompting a reassessment of market expectations for Fed rate cuts. Weak employment figures imply a slowdown in US economic growth momentum, leading investors to bet on more frequent rate cut cycles by the Federal Reserve. This is followed by a decline in US Treasury yields, diminishing the dollar’s attractiveness.

2025 Outlook for the US Dollar and Major Currency Pairs

EUR/USD: The Logic Behind the Euro’s Upward Momentum

The euro’s movement is inversely related to the US Dollar Index. When the dollar is under pressure, the euro tends to benefit. Currently, EUR/USD has risen to 1.0835, showing upward momentum.

Three factors support the euro’s strength: first, continued dollar depreciation expectations; second, improving European Central Bank policies; third, widening growth outlook divergence between Europe and the US—slowing US versus stable Europe.

Key resistance is at 1.0900. If successfully broken, the next target zone shifts to 1.0950–1.1000. Technical support levels are at lower points, near recent highs and important trendlines.

GBP/USD: The Cautious Upward Path of the Pound

The pound’s movement logic is similar to the euro’s but at a slightly slower pace. The market believes the Bank of England’s rate cuts will lag behind the Fed’s, providing relative support for the pound.

It is expected that throughout 2025, GBP/USD will fluctuate within 1.25 to 1.35, with a slight upward trend. The driving forces include policy divergence between the UK and US and changes in market risk sentiment. If economic policies further diverge, the exchange rate may challenge the 1.40 high. However, investors should remain cautious of potential pullbacks caused by political risks and liquidity shocks.

USD/CNH: The Range-Bound Dilemma of USD against RMB

USD/CNH (offshore) is currently moving sideways within the 7.2300–7.2600 range, with limited short-term breakout momentum. The trend depends on the interplay of two major factors—Federal Reserve policy (continued rate hikes favoring a stronger dollar) and China’s economic performance (slowing growth putting pressure on the RMB).

Key breakout point is at 7.2260. If the dollar falls below this level, combined with oversold signals from RSI and other technical indicators, a short-term rebound could occur. Conversely, if USD/CNH breaks above 7.2600, further upside potential opens.

USD/JPY: Long Bearish Position Triggered by Rate Hike Expectations

USD/JPY is one of the most liquid currency pairs globally. Recent signs from Japan’s economy show that January’s average wages increased by 3.1% year-on-year, reaching a 32-year high. This reflects Japan’s gradual exit from its long-term low-inflation dilemma, possibly prompting the Bank of Japan to accelerate rate hikes.

International pressures (especially from the US) may accelerate this process. Therefore, it is expected that USD/JPY will trend downward in 2025, with market expectations of Fed rate cuts and Japan’s economic recovery jointly supporting yen appreciation.

Key technical levels: a break below 146.90 could test lower lows; to reverse the downtrend, a break above 150.0 resistance is needed.

AUD/USD: Australian Dollar Supported by Data

Australia’s latest economic data are impressive—Q4 GDP increased by 0.6% quarter-on-quarter and 1.3% year-on-year, both exceeding expectations; January trade surplus reached 56.2 billion. These positive signals support the strength of the Australian dollar.

The Reserve Bank of Australia (RBA) maintains a cautious stance, hinting at a low likelihood of rate cuts, which means Australia will likely keep relatively high interest rates compared to other developed countries, supporting the AUD. However, global economic uncertainties remain, and if the Fed adopts significant easing, a weaker dollar could push AUD/USD higher.

Long-Term Cycle of the US Dollar Exchange Rate: From Bretton Woods to Today

Understanding the historical patterns of the dollar helps grasp the current situation. Since the collapse of the Bretton Woods system in 1971, the US Dollar Index has gone through eight distinct phases:

1971-1980 Decline: The gold standard failed, leading to dollar abundance, compounded by the oil crisis and high inflation, pushing the dollar index below 90.

1980-1985 Rise: Fed Chair Volcker aggressively fought inflation, raising the federal funds rate to 20%, then maintaining it at 8-10%, driving the dollar index to its 1985 peak.

1985-1995 Decline: The twin deficits (fiscal and trade) persisted, leading to a prolonged bear market for the dollar.

1995-2002 Rise: The internet boom fueled US economic growth, capital inflows increased, and the dollar index reached 120.

2002-2010 Decline: Dot-com bubble burst, 9/11 attacks, prolonged QE policies, and the 2008 financial crisis caused the dollar to plunge to lows around 60.

2011-2020 Early Rise: European debt crisis, China stock market crash, US relative stability, and Fed rate hike expectations pushed the dollar higher.

2020-2022 Early Decline: COVID-19 pandemic shocks led the Fed to cut rates to zero and flood markets with liquidity, causing the dollar to weaken sharply and trigger inflation.

2022–End of 2024: Inflation spiraled out of control, the Fed aggressively raised rates to 25-year highs, and implemented QT (quantitative tightening), challenging dollar confidence once again.

2025 US Dollar Outlook: Dominated by Downward Pressure, with Rebound Opportunities

Based on technical, macro, and market expectations, the overall outlook for the US Dollar Index in 2025 is bearish. The core logic is: Fed rate cut cycle begins, US economic growth slows, and real US Treasury yields decline.

In the short term (Q1-Q2), due to geopolitical risks or better-than-expected economic data, the dollar may rebound within 100–103, but this will be a correction within a broader downtrend. In the medium to long term (post-Q3), if the Fed continues easing and global de-dollarization accelerates, the dollar index could challenge support levels below 102.

Investment Strategies: How to Profit from Dollar Fluctuations

Aggressive Traders’ Swing Trading Approach

Trade high and low within the dollar index range of 95–100. Use technical indicators like MACD divergence and Fibonacci retracements to catch reversal signals, focusing on short-term positions of 3-5 days. Suitable for traders confident in technical analysis.

Conservative Investors’ Wait-and-See Strategy

Remain cautious before the Fed’s policy path becomes clear. Wait for key events such as official meetings and economic data releases, then make directional judgments based on market reactions. This approach avoids risks of early entry.

Medium-Long Term Allocation Advice

As the expectation of a moderate weakening of the dollar strengthens, gradually reduce dollar long positions and shift to non-US currencies (yen, AUD, etc.) or assets related to commodities (gold, copper). This allows capturing gains during global capital reallocation.

In 2025, dollar trading will become more data-driven and event-sensitive. Investors need to stay highly flexible and disciplined in risk management to capture excess returns amid exchange rate volatility.