## Will the US dollar continue to appreciate in 2025? Analysis of multiple countries' currencies and USD exchange rate trends

**Preliminary thoughts on USD/RMB exchange rate forecast**

Before discussing the performance of the USD in 2025, we need to understand a fundamental concept: changes in the USD exchange rates with various countries' currencies essentially reflect the relative strength of two economies. When we say the USD is appreciating or depreciating, we are actually comparing the purchasing power of the USD relative to other currencies (such as the euro, yen, RMB, etc.).

The USD exchange rate is usually measured by the US Dollar Index (DXY)—this index is composed of the exchange rates of the USD against six major currencies: euro, yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. An increase in the index indicates USD appreciation, while a decrease indicates USD depreciation.

## The USD is at a critical crossroads

**Current situation: from strength to turning point**

The USD has fallen for five consecutive trading days, with the USD Index dropping to its lowest since November (around 103.45), and breaking below the 200-day moving average—this is often seen as a bearish signal. Recent US employment data have been weak, leading markets to anticipate a new round of rate cuts by the Federal Reserve.

This shift in expectations is weakening the appeal of the USD. When US Treasury yields decline, the returns on holding US debt in USD terms decrease, and international investors' willingness to hold USD diminishes accordingly.

**Federal Reserve policy: a key variable determining the USD's fate**

The long-term trend of the USD largely depends on the future monetary policy path of the Federal Reserve. If the Fed indeed begins a rate-cutting cycle, it will further depress the USD; conversely, if it maintains high interest rates, the USD may find support.

Based on technical and fundamental analysis, it is expected that in 2025, the USD Index may show a bearish trend for a period. In the short term, it might rebound due to some positive data (such as better-than-expected employment growth), but the long-term trend still faces downward pressure. If the Fed continues to implement rate cuts and economic data remain weak, the USD Index could further decline below 102.

## Lessons from the historical cycle of the USD

Since the collapse of the Bretton Woods system in the 1970s, the USD Index has gone through eight distinct cycle phases:

**1971-1980: The first collapse**
The US government announced the abandonment of the gold standard, leading to a depreciation of the USD. Subsequently, the oil crisis and high inflation caused the USD Index to slide below 90.

**1980-1985: The revival era**
Fed Chairman Volcker adopted aggressive rate hikes (federal funds rate once reached 20%) to combat inflation. Under the strong dollar policy, the USD Index continued to strengthen and peaked in 1985.

**1985-1995: A prolonged bear market**
The US faced a "dual deficit" problem (fiscal deficit + trade deficit), leading to a decade-long depreciation cycle of the USD.

**1995-2002: Internet boom**
During Clinton's presidency, strong economic growth and large capital inflows pushed the USD Index above 120.

**2002-2010: Crisis impact**
The bursting of the internet bubble, 9/11 attacks, quantitative easing, and the 2008 financial crisis caused the USD Index to fall to around 60, a historic low.

**2011-2020 early: Risk aversion**
European debt crisis led investors to buy USD as a safe haven, causing the USD Index to rebound.

**Early 2020 - early 2022: Pandemic easing**
The pandemic prompted the Fed to cut rates to zero and flood the market with liquidity, causing the USD Index to plunge, while global inflation pressures mounted.

**Early 2022 - end of 2024: Rapid rate hikes**
The Fed aggressively raised rates to a 25-year high and began balance sheet reduction (QT). While inflation was controlled, confidence in the USD was again shaken.

This history shows us that: **The USD's movement is closely linked to US economic cycles and monetary policy directions, and is also heavily influenced by global geopolitical factors and policies of other economies.**

## USD/RMB exchange rate forecast and outlook for other currencies

**Dual pressures on USD against RMB**

The USD/RMB exchange rate is influenced by two key factors: Federal Reserve policy and China's economic situation. If the Fed continues to raise interest rates and China's economy slows, the USD may appreciate against the RMB; otherwise, it may depreciate.

Currently, USD/RMB is trading within the range of 7.2300-7.2600, lacking momentum for a breakout. The fluctuations at this level will depend on signals from both central banks and economic data. A break below 7.2260, combined with oversold signals from technical indicators, could provide a short-term rebound opportunity.

**Euro and USD: a contrasting dance**

EUR/USD exchange rate generally moves inversely to the USD Index. If the USD depreciates, the Fed cuts rates, and the European economy improves, the euro will appreciate.

Recent trading data show EUR/USD has risen to 1.0835, demonstrating a sustained upward trend. If it stabilizes at this level, it may continue to break above the psychological barrier of 1.0900. Once this resistance is broken, further gains could follow.

**Pound and USD: reflecting policy divergence**

GBP/USD behaves similarly to EUR/USD, reflecting the close economic ties between the UK and the US. The market generally expects the Bank of England to slow the pace of rate cuts compared to the Fed, which supports the pound.

If the BOE adopts a cautious rate-cutting approach, the GBP will be relatively strong against the USD, pushing GBP/USD higher. In 2025, GBP/USD could oscillate between 1.25 and 1.35, but risks from political uncertainties and market liquidity shocks could cause corrections. If the economic paths of the UK and US diverge further, the exchange rate might challenge the 1.40 high.

**Yen's appreciation prospects**

Japan's January average wages increased by 3.1% year-on-year, reaching a 32-year high, indicating a shift in Japan's long-standing low inflation, low wage environment. As wages rise and inflation pressures build, the Bank of Japan may adjust its interest rate policy in 2025.

This change suggests a downward trend for USD/JPY. If USD/JPY falls below 146.90, it will test lower support levels; to reverse the downtrend, a break above 150.0 resistance is needed. Expectations of Fed rate cuts and Japan's economic recovery will be key drivers of yen appreciation.

**Australian dollar's relative strength**

Australia's Q4 GDP grew by 0.6% quarter-on-quarter and 1.3% year-on-year, with a trade surplus of 56.2 billion yuan in January—these data surpass expectations and support the AUD.

The Reserve Bank of Australia remains cautious, hinting that rate cuts are unlikely in the near term. This implies that Australia's monetary policy remains relatively hawkish among major economies, providing support for the AUD. Despite potential adjustments in the USD, global economic uncertainties remain a concern.

## Investment strategies for the USD in 2025: short-term vs. medium-long term choices

**Short-term operations: Q1-Q2 trading opportunities**

Reasons to be bullish: Geopolitical tensions heating up could cause rapid USD appreciation; better-than-expected US economic data could delay rate cut expectations.

Reasons to be bearish: Continuous rate cuts by the Fed and lagging ECB policies could strengthen the euro and weaken the USD; rising US debt risks could also damage USD credibility.

Aggressive investors may consider high-low trading within the USD Index range of 95-100, using MACD, Fibonacci, and other technical indicators to catch reversal signals. Conservative investors should mainly wait and see, awaiting clearer Fed policy signals.

**Medium-long term positioning: post-Q3 asset allocation**

As the Fed's rate-cut cycle deepens and US Treasury yield advantages diminish, capital may flow into high-growth emerging markets or recovering Eurozone economies. If the trend of de-dollarization accelerates globally, the USD's status as a reserve currency could weaken marginally.

At this stage, strategies should shift toward: gradually reducing USD long positions and reallocating to reasonably valued non-US currencies (yen, AUD) or commodities-linked assets (gold, copper, etc.).

**Core investment discipline**

Trading USD in 2025 will become more data-driven and event-sensitive. Only by maintaining sufficient flexibility and strict risk discipline can investors capture excess returns amid the volatility of USD/RMB exchange rates.