## 2025 USD Investment Layout｜Exchange Rate Trends and Trading Strategies in a Rate Cut Cycle

**As the world's primary settlement currency, the US dollar's policy direction influences the entire market.** Since September 2024, the Federal Reserve has officially entered a rate cut cycle, with the latest dot plot forecasts aiming to lower interest rates to around 3% by 2026. This shift presents both opportunities and risks for investors. So, will the US dollar rise or fall in the future? How should investors seize profit opportunities within this cycle?

### The Essence of the US Dollar Exchange Rate and the US Dollar Index

The so-called USD exchange rate simply refers to the exchange ratio between the US dollar and other currencies. For example, EUR/USD=1.04 means 1.04 USD can exchange for 1 Euro; if this number rises to 1.09, it indicates the Euro is appreciating and the USD is depreciating; conversely, a drop to 0.88 shows the USD is strengthening.

The US Dollar Index measures the overall performance of the dollar against a basket of major currencies. Notably, **the movement of the USD index is influenced not only by US monetary policy but also by the central bank policies and economic conditions of other major countries.** Therefore, a simple rate cut by the US does not necessarily lead to a decline in the USD index; global central bank policies must also be observed.

### Four Core Factors Driving the USD Trend Chart

#### 1. Interest Rate Policy as the Direct Driver

Interest rate levels are the most direct factor affecting the USD exchange rate. When interest rates rise, the USD becomes more attractive, attracting capital inflows; when rates fall, capital may flow to other higher-yield markets, weakening the USD. However, investors should beware of a common misconception: **markets are efficient and will not wait until rate cuts are confirmed before starting to decline; they will price in expectations in advance.** This is why monitoring the dot plot becomes crucial.

#### 2. Quantitative Adjustment of USD Supply

Quantitative easing (QE) and quantitative tightening (QT) directly impact the total USD in the market. QE increases USD supply, lowering its value; QT reduces supply, potentially boosting the USD. However, these changes do not manifest immediately, so investors need to closely monitor the Fed's movements.

#### 3. Long-term Impact of International Trade Patterns

The US has maintained a long-term trade deficit (imports greater than exports), which affects the supply and demand balance of the USD. Increased imports require more USD payments, pushing the dollar higher; increased exports reduce demand, leading to USD depreciation. However, such impacts are mostly long-term and not easily observed in the short term.

#### 4. Global Trust and Geopolitical Landscape

The USD's dominance in global settlement stems from worldwide trust in the US. However, recent "de-dollarization" trends are becoming more evident—such as the Eurozone, RMB crude oil futures, and virtual currencies—all challenging USD hegemony. **If the US fails to effectively restore confidence through policy, the liquidity of the dollar may further decline, which is why the Fed has become more cautious in rate decisions.**

### A Half-century Review of the USD Trend Chart: From Bretton Woods to Today

Over the past 50 years, the USD has experienced eight major phases, each linked to significant economic events:

- **2008 Financial Crisis**: Market panic triggered massive capital inflow into the dollar, causing a sharp appreciation.
- **2020 Pandemic Period**: Large-scale US fiscal stimulus temporarily weakened the dollar, but economic recovery led to a strong rebound.
- **2022-2023 Aggressive Rate Hike Cycle**: The Fed continuously raised rates, making the USD dominant against most currencies, with the index once surpassing 114.
- **2024-2025 Rate Cut Initiation**: The USD's attractiveness diminishes, capital flows into cryptocurrencies, gold, and other high-yield assets, entering a depreciation cycle.

### 2025 USD Trend Forecast: Possible Weakening After High-Level Fluctuations

Based on current market analysis, the USD faces multiple bearish factors:

**Bearish factors outweigh bullish ones.** Trade wars and tariff policies continue to escalate—America is no longer only engaging with single countries but launching tariffs globally. Future US trade partners may reduce business with the US, which is bearish for the dollar. Meanwhile, the de-dollarization trend persists, and gold prices continue to rise, also unfavorable for the USD.

However, investors should not be overly pessimistic. **Geopolitical risks can erupt at any time; in the event of a financial crisis or geopolitical incident, capital will quickly flow back into the USD because it remains a "safe-haven currency."**

Another key observation: **While the USD is beginning to cut rates, the constituent currencies of the USD index (except the Yen) are also starting to lower rates. The speed and extent of rate cuts will directly influence exchange rates.** For example, if the European Central Bank does not rush to cut rates while the US continues to do so, the Euro may appreciate, and the USD will naturally weaken.

**Therefore, the most probable trend for the USD index in the next year is "high-level fluctuation followed by weakening," rather than a sharp decline.**

### Chain Reaction of USD Fluctuations on Major Asset Classes

#### Gold Market

A weakening USD generally benefits gold. Since gold is priced in USD, a decline in the dollar reduces the purchase cost, increasing demand. Additionally, in a rate-cut environment, gold becomes more attractive as it has no interest but can hedge against inflation, and its opportunity cost decreases.

#### Stock Market

US rate cuts stimulate capital inflows into stocks, especially technology and growth stocks. However, if the USD weakens excessively, foreign investors may shift to Europe, Japan, or emerging markets seeking opportunities, which could weaken the inflow into US stocks.

#### Cryptocurrencies and Virtual Assets

A weaker USD means reduced purchasing power, generally providing positive momentum for cryptocurrencies. Bitcoin, known as "digital gold," is especially viewed as a store of value during global economic turbulence, USD depreciation, or rising inflation.

#### Major Currency Pair Trends Analysis

**USD/JPY (USD to Yen):** Japan has ended its ultra-low interest rate policy, and capital may flow back into the Yen. The probability of Yen appreciation and USD/JPY depreciation is relatively high.

**TWD/USD (TWD to USD):** Taiwan’s interest rate policy follows the US, but domestic factors (such as housing market restrictions limiting rate cuts) are complex. As an export-oriented economy, TWD appreciation is favorable. It is expected that during the US rate cut cycle, TWD will appreciate but with limited magnitude.

**EUR/USD (Euro to USD):** The Euro is currently relatively strong, but the European economy faces challenges—high inflation yet weak growth. If the European Central Bank gradually cuts rates, the USD may weaken slightly but not depreciate significantly.

### How to Find Investment Opportunities Amidst Volatility

The strength or weakness of the USD not only influences international financial news but also directly affects individual investment returns and asset allocation. This rate cut cycle marks the start of a new market rhythm—capital flows are changing, and trading opportunities are shifting accordingly.

Rather than passively waiting for exchange rate fluctuations, it’s better to proactively position and follow the trend. In the short term, every major economic indicator release can trigger sharp currency movements. For example, around the monthly CPI release, the USD index often exhibits noticeable volatility. Savvy investors can leverage this for short-term long or short positions.

**Remember a key rule: as long as uncertainty exists, investment opportunities will arise.** The key is to grasp the rhythm of the USD trend chart and, through the interaction of macro environment and micro events, find your own profit window.