## 2025 US Dollar Trend Analysis: From Historical Cycles to Currency Pair Forecasts

### Interpretation of the US Dollar Exchange Rate System

The US dollar exchange rate reflects the value ratio of a specific currency relative to the US dollar. For example, EUR/USD=1.04 means it takes 1.04 dollars to exchange for 1 euro; if the ratio rises to 1.09, it indicates the dollar has depreciated; if it falls to 0.88, it shows the dollar has appreciated.

The US Dollar Index is weighted based on the exchange rates of six major currencies (Euro, Yen, Pound, Canadian Dollar, Swedish Krona, Swiss Franc). The index's level depends on the relative strength of these six currencies. It is worth noting that central banks' regulatory policies often differ, so changes in the Federal Reserve's policy do not necessarily lead to synchronized movements in the US Dollar Index.

### Current Status and Short-term Trends of the US Dollar Index

The US dollar has declined for five consecutive days, with the index falling to its lowest since November (around 103.45) and breaking through the 200-day moving average—this is a typical bearish signal.

In March, US employment data fell short of expectations, reinforcing market expectations of multiple rate cuts by the Federal Reserve. This was followed by a decline in US Treasury yields, further weakening the dollar's investment appeal. The Federal Reserve's monetary policy has a profound impact on the dollar's outlook: if market expectations of rate cuts increase, the dollar is more likely to weaken; conversely, it could trigger a rebound.

Although there is short-term room for a rebound, the overall downward pressure remains. If the Fed significantly cuts rates and economic data continues to be weak, the dollar may continue to decline in 2025. Based on technical analysis, macro factors, and market expectations, the US Dollar Index in 2025 **may maintain a bearish pattern**, with the next support level possibly falling below 102.00.

### The Eight Historical Cycles of the US Dollar

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

**1971-1980 (Decline Phase):** Nixon announced the end of the gold standard, leading to dollar oversupply, followed by oil crises and high inflation, pushing the dollar below 90.

**1980-1985 (Rise Phase):** Former Fed Chairman Volcker aggressively fought inflation, raising the federal funds rate to 20%, reaching a historic high in the dollar index.

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

**1995-2002 (Rise Phase):** Under Clinton's administration, the internet boom drove strong US growth, pushing the dollar index above 120.

**2002-2010 (Decline Phase):** Dot-com bubble burst, 9/11 attacks, prolonged quantitative easing, culminating in the 2008 financial crisis, with the dollar falling near 60.

**2011-2020 (Rise Phase):** European debt crisis and Chinese stock market crash occurred, but US stable growth and Fed rate hike expectations supported the dollar.

**2020-2022 (Decline Phase):** COVID-19 pandemic led to aggressive rate cuts to 0% and massive liquidity injections, causing a sharp decline in the dollar index and severe inflation.

**2022-2024 (Ongoing Decline):** Uncontrolled inflation prompted the Fed to raise rates sharply to 25-year highs and initiate QT, suppressing inflation but challenging dollar confidence.

### Outlook on Major Currency Pairs in 2025

#### EUR/USD

EUR/USD tends to move inversely to the dollar index. If Fed rate cut expectations and US economic slowdown materialize, while European economy continues to improve, EUR/USD is expected to rise. Recent trading shows EUR/USD has climbed to 1.0835, demonstrating sustained upward momentum. If this level stabilizes, the next target could be psychological levels like 1.0900. Technical indicators show previous highs and trendlines form strong support, with 1.0900 as a key resistance. Breaking this resistance could trigger a larger rally.

#### GBP/USD

The UK and US economies are closely linked, and GBP/USD shows similar trends to EUR/USD. Market expectations suggest the Bank of England will slow the pace of rate cuts compared to the Fed, supporting the pound. Cautious BoE easing measures will likely strengthen GBP. Technical indicators suggest GBP/USD in 2025 will **most likely oscillate upward**, with a core trading range of 1.25-1.35. If UK and US economic policies further diverge, the exchange rate could challenge above 1.40, but political risks and liquidity shocks should be watched.

#### USD/CNH

The USD/CNY exchange rate is influenced by market supply and demand as well as China-US economic policies. If the Fed continues to adopt a hawkish stance while China's economy slows, the yuan will face pressure, and USD/CNH is likely to rise. The People's Bank of China’s exchange rate policies and market guidance are crucial for the yuan's long-term performance. Technically, USD may trade sideways between 7.2300-7.2600, with little short-term momentum for a breakout. A break below 7.2260 with oversold signals could present buying opportunities for a rebound.

#### USD/JPY

USD/JPY is the most liquid currency pair globally. Japan's January basic wage growth rose 3.1% year-on-year, the highest in 32 years, indicating a potential shift from long-term low inflation and low wages. The Bank of Japan may adjust interest rates under rising inflation pressures. Under US pressure, Japan might accelerate rate hikes. In 2025, USD/JPY is **expected to trend downward**, driven mainly by rate cut expectations and Japan's economic recovery. Technical analysis shows a break below 146.90 could test lower lows, while a break above 150.0 is needed to reverse the downtrend.

#### AUD/USD

Australia's Q4 GDP grew 0.6% quarter-on-quarter and 1.3% year-on-year, both exceeding expectations, with a trade surplus of 56.2 billion in January. These data support a stronger Australian dollar. The Reserve Bank of Australia remains cautious, implying a low likelihood of future rate cuts, meaning **Australia will likely maintain a relatively hawkish monetary stance**. Despite positive data, the AUD/USD will also be affected by US dollar adjustments and global economic uncertainties. If the Fed continues easing in 2025, a weaker dollar will push AUD/USD higher.

### 2025 US Dollar Investment Opportunities

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

Bullish scenario: Escalating geopolitical conflicts could push the dollar index rapidly to 100-103; US economic data exceeding expectations may delay rate cuts, boosting the dollar.

Bearish scenario: Continuous Fed rate cuts and delayed easing by the European Central Bank could see the dollar index fall below 95; worsening US debt issues may trigger dollar credit risk.

Aggressive traders can use technical indicators (MACD divergence, Fibonacci retracement) within the DXY 95-100 range to catch reversal signals; conservative traders should wait for clearer Fed policy signals.

**Medium to Long-term Allocation (Post Q3): Moderate US dollar weakening, shift to non-US assets**

Deeper rate cuts by the Fed will reduce US Treasury yield advantages, prompting capital flows into high-growth emerging markets or recovering Eurozone. If de-dollarization accelerates globally, the US dollar's reserve currency status may weaken marginally.

It is advisable to gradually reduce long USD positions and shift into reasonably valued non-US currencies (Yen, AUD) or commodities (gold, copper).

In 2025, trading in the US dollar will become more data-driven and sensitive to events. Only by maintaining flexibility and discipline can investors capture excess returns amid exchange rate fluctuations.