What will be the trend of the US dollar exchange rate in 2025? A comprehensive analysis of USD against multiple currencies forecast and trading opportunities

Basic Understanding of the US Dollar Index and Exchange Rates

The core meaning of the US dollar exchange rate is the value exchange ratio of a certain currency relative to the US dollar. Taking EUR/USD as an example, when the exchange rate is 1.04, it means 1 US dollar can be exchanged for 0.96 euros, or 1 euro requires 1.04 dollars. An increase in the exchange rate reflects the currency’s appreciation and the dollar’s depreciation; a decrease indicates the currency’s depreciation and the dollar’s appreciation.

The US dollar index is compiled based on the weighted exchange rates of six major international currencies against the US dollar, including the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. The index’s high or low reflects the strength or weakness of the dollar relative to these currencies. It is important to note that Federal Reserve rate cuts do not necessarily lead to a decline in the dollar index; the actions of the central banks of related countries must also be considered.

Recent Trends in the US Dollar Index

Currently, the US dollar index is at a low since November, oscillating around 103.45, and has broken below the 200-day simple moving average—often interpreted as a bearish signal. The five consecutive days of decline reflect market concerns about the dollar’s outlook.

Weak US employment data reinforce market expectations of multiple rate cuts by the Federal Reserve, lowering US Treasury yields and further weakening the dollar’s attractiveness. The direction of the Fed’s monetary policy is crucial; frequent rate cut expectations will increase the likelihood of dollar weakness.

Despite the possibility of short-term rebounds, bearish pressure still significantly constrains the dollar. If the Fed continues to cut rates and economic data remain weak, the dollar could further decline in 2025, with support levels possibly below 102.00.

Historical Cycles of the Dollar Fluctuations

Since the collapse of the Bretton Woods system, the dollar index has experienced eight clear historical phases:

1971-1980: Decline Phase
Nixon’s administration announced the end of the gold standard, allowing gold and dollar prices to float freely. Subsequent oil crises pushed inflation higher, and the dollar depreciated below 90.

1980-1985: Rise Phase
Former Fed Chairman Volcker aggressively fought inflation, pushing the federal funds rate to a historic high of 20%, then maintaining it around 8-10%. The dollar index continued to strengthen, reaching a peak in 1985.

1985-1995: Decline Phase
The US faced “twin deficits” (fiscal and trade deficits), leading to a long-term bear market for the dollar.

1995-2002: Rise Phase
The rise of the internet era boosted the US economy, capital flowed back into the US, and the dollar index surged to a high of 120.

2002-2010: Decline Phase
The bursting of the internet bubble, 9/11, and prolonged quantitative easing weakened the dollar. The 2008 financial crisis further accelerated the decline, with the dollar dipping to around 60.

2011-2020 early: Rise Phase
European debt crisis and China’s stock market crash kept the US relatively stable, with multiple Fed rate hike expectations pushing the dollar index higher.

2020 early - 2022 early: Decline Phase
COVID-19 pandemic prompted the Fed to cut rates to zero and print money extensively, causing a sharp decline in the dollar index and triggering inflation pressures.

2022 early - 2024 end: Continuous Decline Phase
Uncontrolled inflation led the Fed to aggressively raise rates to a 25-year high and initiate quantitative tightening. While inflation was controlled, confidence in the dollar was again challenged.

2025 US Dollar Exchange Rate Forecast: Major Currency Pair Analysis

EUR/USD (Euro / US Dollar) Trend

EUR/USD has an almost inverse relationship with the dollar index. Expectations of dollar depreciation, improved European Central Bank policies, and economic divergence suggest that if the Fed continues rate cuts as market expects and the US economy slows, while Europe continues to improve, EUR/USD is likely to continue rising.

Current trading data shows EUR/USD has risen to 1.0835, maintaining an upward momentum. If it stabilizes at this level, it may test higher to the psychological level of 1.0900. On the technical side, previous highs could serve as support, and 1.0900 is a key resistance. Breaking through this level could open further upside potential.

GBP/USD (British Pound / US Dollar) Trend

The UK economy is closely linked to the US, so GBP/USD behaves similarly to EUR/USD. Market expectations that the Bank of England will slow its rate cuts compared to the Fed support the pound. If the BoE adopts a cautious rate cut stance, it will strengthen the pound against the dollar, pushing GBP/USD higher.

Technical indicators are positive, and it is expected that GBP/USD will likely remain range-bound with an upward bias in 2025, within a core volatility zone of 1.25-1.35. Divergence in policies and risk aversion are main drivers. If economic and policy paths between the UK and US further diverge, the exchange rate could challenge highs above 1.40, but political risks and liquidity shocks should be watched.

USD/CNH (US Dollar / Chinese Yuan) Trend

The USD/CNY movement is influenced by market supply and demand as well as economic policies of both countries. If the Fed continues to raise interest rates and China’s economy slows, the yuan may face pressure, leading USD/CNH higher. The People’s Bank of China’s exchange rate policy and market guidance will have long-term impacts.

From a technical perspective, the dollar may continue to range between 7.2300 and 7.2600, with little short-term momentum for a breakout. Investors should focus on the breakout of this range. If USD falls below 7.2260 and technical indicators show oversold or rebound signals, short-term buying opportunities may arise.

USD/JPY (US Dollar / Japanese Yen) Trend

USD/JPY is one of the most liquid currency pairs globally, with the dollar and yen being the first and fourth largest reserve currencies. Japan’s January basic wage growth of 3.1% year-on-year, the highest in 32 years, suggests Japan may be changing its long-term low-inflation, low-wage pattern. Rising wages could trigger inflationary pressures, prompting the Bank of Japan to adjust interest rate policies.

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

AUD/USD (Australian Dollar / US Dollar) Trend

Australia’s 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, showing strong performance and supporting the Australian dollar. The Reserve Bank of Australia maintains a cautious stance, implying a low likelihood of rate cuts, which indicates that Australia maintains a relatively active monetary policy stance compared to other major economies, supporting AUD.

While Australian data supports AUD, potential adjustments in the dollar and global economic uncertainties should be monitored. If the Fed continues easing policies in 2025, a weaker dollar will drive AUD/USD higher.

2025 US Dollar Trading Strategy Framework

Short-term strategy (Q1-Q2): Structural oscillation, mainly swing trading

Bullish scenario: Escalation of geopolitical conflicts may cause the dollar index to quickly surge to 100-103; US economic data exceeding expectations could delay rate cut expectations, leading to a dollar rebound.

Bearish scenario: Continuous rate cuts by the Fed and lagging ECB policies could push the euro and dollar index below 95; rising US debt risks may impact dollar credibility.

Trading advice: Active traders can buy low and sell high within the DXY 95-100 range, using technical signals to catch reversals; conservative investors should wait for clearer Fed policy signals.

Medium to long-term strategy (after Q3): Mild dollar weakening, asset allocation adjustments

The Fed’s rate cut cycle deepens, narrowing US Treasury yield advantages, and funds may flow into emerging markets or recovering Eurozone. The global de-dollarization trend (such as BRICS countries promoting local currency settlement) may marginally weaken the dollar’s reserve currency status.

Trading advice: Gradually reduce dollar long positions, and allocate to reasonably valued non-US currencies (yen, AUD) or commodities-linked assets (gold, copper).

In 2025, US dollar trading will become more data-driven and event-sensitive. Only by maintaining flexibility and disciplined trading can one seize excess returns amid exchange rate fluctuations.