How to grasp the USD depreciation trend in 2025? Multi-currency pair market forecasts and investment strategies

Why Is the US Dollar Continually Weakening? The Logic Behind the Index’s Bottoming

In the past week, the US dollar has performed weakly, with the dollar index declining for five consecutive days, reaching its lowest point since November (around 103.45), and breaking below the 200-day moving average—this technical signal often indicates potential short-term bearishness.

The core drivers behind the dollar’s depreciation stem from two aspects. First is the shift in macro expectations: US employment data in March fell short of expectations, prompting the market to reinforce expectations of multiple rate cuts by the Federal Reserve. When the market anticipates frequent rate cuts, US Treasury yields tend to decline, directly weakening the dollar’s appeal as a safe-haven asset. Second is policy divergence: if the Fed embarks on an easing cycle while other central banks remain tightening, the dollar’s relative depreciation becomes inevitable.

From a technical perspective, oversold conditions combined with rate cut expectations suggest that, although a short-term rebound may occur, the overall downward trend still exerts pressure on the dollar. Based on the current situation, the US dollar index is likely to remain relatively weak in 2025, especially if the Fed continues to cut rates and economic data remains soft, potentially pushing the index further below the 102.00 support level.

Historical Cycles of the US Dollar: From Bretton Woods to Today

To understand the dollar’s future, it is essential to review its eight complete historical cycles.

First decline (1971-1980): After Nixon announced the end of the gold standard, the dollar entered a period of excess. Subsequent oil crises and high inflation drove the dollar index below 90.

First rise (1980-1985): Former Fed Chair Volcker successfully curbed inflation through aggressive rate hikes (federal funds rate once reached 20%), strengthening the dollar to historic highs.

Second decline (1985-1995): The “dual deficits” (fiscal and trade deficits) led to a prolonged bear market for the dollar.

Second rise (1995-2002): The internet revolution fueled strong US economic growth, with large capital inflows pushing the dollar index above 120.

Third decline (2002-2010): The burst of the dot-com bubble, 9/11, quantitative easing, and the 2008 financial crisis combined to push the dollar index near 60, its historical low.

Third rise (2011-2020 early): External risks like the European debt crisis and China’s stock market crash highlighted US stability, coupled with Fed rate hikes, leading to a multi-year bull market for the dollar.

Fourth decline (early 2020-2022): The pandemic triggered extreme easing policies, with rates near zero and massive money printing, causing the dollar to fall sharply and fueling severe inflation.

Fourth rise and adjustment (2022 early-2024): To combat runaway inflation, the Fed launched the fastest rate hikes in history, raising policy rates to a 25-year high and initiating quantitative tightening (QT). While inflation was contained, dollar confidence was challenged again.

Currently, we are in a new adjustment phase, and historical patterns suggest the dollar’s “hegemony cycle” may be entering a decline.

Major Currency Pair Trends: Who Will Take Over the Dollar’s Strength?

EUR/USD: Continuous Rise Under Opposite Logic

EUR/USD has an inverse relationship with the dollar index. When the dollar weakens, the European Central Bank’s policy improves, and economic expectations turn positive, the euro often gains.

Recent data shows EUR/USD has risen to 1.0835, indicating a clear upward momentum. If this level stabilizes, it may continue challenging psychological thresholds like 1.0900. Technical analysis indicates previous highs and trendlines will serve as support, with 1.0900 being a key resistance. Breaking this resistance could lead to substantial further gains.

GBP/USD: Beneficiary of Policy Divergence

The UK and US are closely linked, but GBP/USD shows subtle differences from EUR/USD. Market expectations suggest the Bank of England will cut rates more slowly than the Fed, providing relative support to the pound. If the BOE adopts a more cautious rate cut strategy, the pound may appear stronger against the dollar.

With positive technical signals and policy divergence expectations, GBP/USD is expected to maintain a sideways upward trend in 2025, with a core trading range between 1.25 and 1.35. Further divergence in economic and policy paths could push the pair above 1.40, but political risks and liquidity shocks may cause retracements.

USD/CNH: Range Consolidation Under Policy Guidance

The performance of USD/CNH depends on three factors: US monetary policy, China’s economic trajectory, and central bank exchange rate policies. If the Fed remains dovish and China’s growth slows, the yuan will face depreciation pressure, pushing USD/CNH higher.

Currently, USD/CNH hovers between 7.2300 and 7.2600, lacking clear momentum for a breakout. Investors should watch for signals of突破 this support/resistance zone. If the dollar breaks below 7.2260 and technical indicators like RSI show oversold or rebound signals, short-term upward moves may follow.

USD/JPY: Potential Turning Point in Japan’s Economic Recovery

USD/JPY is one of the most liquid currency pairs globally. Recently, Japan’s wages rose to a 32-year high (up 3.1% YoY in January), indicating a shift in Japan’s long-standing low inflation, low wage environment. As wages increase and inflation pressures emerge, the Bank of Japan may adjust its interest rate policy. International pressures (especially from the US) could accelerate rate hikes.

The forecast for 2025 is a downward trend for USD/JPY. Expectations of rate cuts and Japan’s economic recovery will be the main trading drivers. Technical analysis shows that if USD/JPY falls below 146.90, it could test lower supports; reversing the downtrend would require a break above 150.0 resistance.

AUD/USD: Relatively Resilient Supported by Strong Data

Australia’s latest data is impressive: Q4 GDP grew 0.6% QoQ and 1.3% YoY, both exceeding expectations; January trade surplus rose to 56.2 billion. These figures provide strong support for the Australian dollar.

The Reserve Bank of Australia remains cautious, hinting that rate cuts are unlikely, implying Australia will maintain a relatively positive stance amid the global monetary environment. Despite positive data, global economic uncertainties remain. If the Fed continues easing in 2025, dollar weakness will favor AUD/USD upside.

Investment Opportunities and Risks: How to Position for 2025 USD Trends

Short-term Trading (Q1-Q2): Opportunities in Structural Volatility

Bullish triggers: Escalating geopolitical conflicts may trigger risk aversion, pushing the dollar index quickly toward 100-103; US economic data exceeding expectations (e.g., non-farm payrolls > 250,000) could delay market rate cuts, supporting a dollar rebound.

Bearish triggers: Continuous rate cuts by the Fed while the ECB remains tightening, strengthening the euro, could drag the dollar index below 95; weak US Treasury demand may trigger credit risk fears.

Practical tips: Aggressive traders can adopt a high-buy-low-sell-high strategy within the DXY 95-100 range, using technical tools like MACD divergence and Fibonacci retracements to catch reversal signals. Conservative traders should wait for clearer Fed policy signals.

Medium-Long Term Allocation (Q3 and beyond): Transition from Dollar Bullish to Diversified Portfolio

As the Fed’s rate cut cycle deepens, US Treasury yield advantages will narrow, prompting funds to flow into high-growth emerging markets and recovering Eurozone. If de-dollarization accelerates globally (e.g., BRICS countries promoting local currency settlements), the marginal decline of the dollar’s reserve currency status will become a long-term pressure.

Recommended strategy: Investors should gradually reduce dollar long positions and shift toward assets with reasonable valuations in non-US currencies (yen, AUD, etc.) or commodities (gold, copper, etc.).

The success or failure of dollar investments in 2025 hinges on “data sensitivity” and “event response capability.” Only by maintaining flexible strategies and disciplined trading can investors capture excess returns amid exchange rate fluctuations.