Will the dollar flow in 2568? Speculating on currency movements based on the FED's decision

If you are an investor following the market, you probably noticed that the dollar experienced significant fluctuations at the end of last year. After the FED began cutting interest rates multiple times in 2024 but then paused in early 2025, this situation created confusion for many in making currency speculation decisions. This article will help you understand which currency is better and what the right timing is.

Why is the dollar a market-moving event globally?

The dollar is not just the currency of the United States. It is a tool for international transactions, accounting for 88% of global trade. When the dollar changes by just 1%, it can generate huge profits or losses for fund managers, especially those managing assets worth billions.

Additionally, the dollar is used as the main reference currency in global trade, from oil and gold to Bitcoin. When the dollar strengthens, the prices of these commodities tend to decrease because buyers need to spend more of their own money to purchase them, and vice versa.

What drives the dollar’s value?

The FED’s interest rate policy is the main driver. When the FED raises or cuts interest rates, it directly affects demand for holding dollars. For example, when the FED started lowering rates in the second half of 2024, the dollar began to weaken. But when the FED stopped cutting and signaled higher inflation than expected, the dollar was supported again.

The strength of the US economy. When the economy performs well, demand for investment and higher returns increases, leading foreign investors to invest more in US assets, which strengthens the dollar.

Geopolitical uncertainty. During times of war or international conflicts, investors tend to flee to safe-haven assets, with the dollar being the first choice. This causes the dollar to appreciate in the short term.

However, the US’s use of the dollar-based financial system as a tool for sanctions has motivated many countries to reduce reliance on the dollar, which could put long-term pressure on the dollar’s value.

Dollar movements: looking back to look ahead

Studying history helps us understand movement patterns. Since 2009, the dollar index (DXY) has moved as follows:

High liquidity period (2009-2011): The FED injected QE to stimulate the economy after the Subprime crisis, causing the dollar to weaken and fluctuate within 73-83 points.

European crisis period (2012-2014): The Greek debt crisis led investors to flee to the dollar, with the DXY index forming higher lows and moving upward to 78-83 points.

Dollar surge period (2014-2016): The FED announced the end of QE3 and prepared to raise rates. The DXY index surged from 80 to 100 points.

Trump era (2017-2019): America First policies created volatility. The DXY fluctuated within 90-100 points, forming a consolidation.

COVID and zero interest rate era (2020-2021): The FED cut rates emergency measures. The DXY declined from 100 to 90 but received strong buying support, forming a triple bottom.

Inflation and dollar rally (2022-2023): Inflation soared, and the FED accelerated rate hikes from 0.25% to 5.25-5.50%. The DXY surged from 95 to 114, reaching a 20-year high.

Second half of 2024: Dollar enters downtrend. After the FED announced the first rate cut, the DXY dropped from 108 to 99.

2025: Uncertainty pause. The FED paused rate cuts and gave unexpected signals, causing the DXY to fluctuate narrowly between 96.50-98.50, reflecting market confusion. Technically, the 97.00 level is a key support. If it holds, the dollar may rebound to test resistance at 98.50. If it breaks down, it signals a strong move into a downtrend.

Which currency to speculate on?

Gold - a safe haven. Gold has an inverse relationship with the dollar. When the dollar weakens, gold tends to rise. Investors can buy physical gold bars or more conveniently through highly liquid ETFs.

Euro and Yen - challengers. The euro has been supported by the ECB’s tightening policies, while the yen may benefit from the BOJ’s shift toward normalization. Experienced investors can trade forex by shorting the dollar against these currencies, but must be cautious of high leverage risks.

Risk assets - for the brave. When the dollar weakens, risk assets like large tech stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, Tesla) often benefit because these companies generate significant revenue abroad. Stock prices surged notably in the second half of 2024 but slowed when the FED paused rate cuts.

Bitcoin and other cryptocurrencies tend to follow similar patterns, soaring in late 2024 but stagnating in 2025, except for Bitcoin which remains in high demand.

Diversification - the most important principle. Do not commit all your resources to a single strategy. Instead, combine multiple strategies, closely monitor fundamental factors and economic data, and adjust your portfolio as market conditions change.

Summary: The key driver is the FED

Dollar outlook in 2025. It remains uncertain. After the clear downtrend in 2024 was interrupted, the next direction depends on whether the FED continues rate cuts or not, and which economic data will be the main driver.

In the long term, structural factors such as the US budget deficit, trade deficit, and the trend toward de-dollarization (De-dollarization) continue to exert downward pressure on the dollar. Ultimately, the key to currency speculation is understanding these factors, choosing which currency to favor, and making timely adjustments based on market conditions.