What will happen to the US dollar in 2025? The chain reaction of multi-currency exchange rates on the RMB exchange rate trend

Why Is the US Dollar Index Key? An Interpretation of Underlying Logic

The movement of the USD/CNY exchange rate is not independent but is influenced by the US dollar’s position in the global monetary system. To understand this, it is first necessary to recognize the essence of the US Dollar Index.

The US Dollar Index is compiled based on the exchange rates of six major international currencies (Euro, Yen, Pound Sterling, Canadian Dollar, Swedish Krona, and Swiss Franc) against the US dollar. The index’s rise or fall reflects the strength or weakness of the dollar relative to these currencies. It is important to note that the direction of the USD Index does not solely result from the policies of a single central bank but is a comprehensive reflection of the monetary policy battles among multiple countries.

For example, the EUR/USD currency pair shows an almost opposite trend to the USD Index. When expectations for Fed rate cuts increase and the European Central Bank tightens policy, the euro tends to appreciate, dragging the USD Index down. This chain reaction ultimately also influences the USD/CNY exchange rate.

Current Signals of Pressure on the US Dollar

In the past five trading days, the USD Index has continued to weaken and is currently hovering around 103.45, near its lows since November. More notably, the USD Index has broken below the 200-day simple moving average, which is often interpreted as a bearish signal in technical analysis.

The US employment data released in March fell short of expectations, reinforcing market expectations for multiple rate cuts by the Federal Reserve. As the rate hike cycle ends, US Treasury yields have declined accordingly, significantly reducing the dollar’s attractiveness. Historical experience shows that when the Fed initiates rate cuts while other central banks’ policies remain relatively stable, the dollar typically faces depreciation pressure.

Although a technical rebound may occur in the short term, the overall trend still leans toward a weaker dollar. If the Fed indeed begins a rate-cutting cycle and economic growth continues to slow, the USD Index is likely to remain weak through 2025, with a target support level possibly below 102.

What Does the Historical Cycle Tell Us?

Since the collapse of the Bretton Woods system (1971), the USD Index has experienced eight complete cycles, providing reference for current forecasts.

1971-1980: After the gold standard was abandoned, the dollar entered a flood stage, compounded by the oil crisis, leading to a decline in the USD Index below 90.

1980-1985: Former Fed Chair Paul Volcker implemented aggressive rate hikes (federal funds rate up to 20%) to curb inflation, causing the dollar to soar to a peak in 1985.

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

1995-2002: The internet boom boosted US economic growth, attracting capital inflows, and the USD Index once reached a high of 120.

2002-2010: The burst of the internet bubble, 9/11, and the 2008 financial crisis hit the dollar hard, with the index falling to around 60, a historic low.

2011-2020 early: Amid the European debt crisis and Chinese stock market crash, Fed rate hike expectations increased, strengthening the dollar.

2020-2022 early: The COVID-19 pandemic prompted extreme easing in the US, with the benchmark interest rate dropping to 0%, causing a sharp decline in the USD Index and sparking inflation spirals.

From 2022 onward: The Fed aggressively raised interest rates to combat runaway inflation and began quantitative tightening (QT), successfully curbing prices but also weakening confidence in the dollar.

This historical context indicates that the dollar’s movements are closely related to the growth differentials and policy divergences between the US and other economies.

USD/CNY Exchange Rate: A Barometer of US-China Policy Divergence

Against the backdrop of multi-currency battles, the USD/CNY exchange rate will become the most direct trading instrument.

Disparities in economic cycles and policy paths between the US and China are shaping this exchange rate’s trajectory. If the Fed continues easing while the Chinese central bank maintains a prudent neutral stance, this policy gradient will push the USD/CNY higher.

Technically, USD/CNY is currently consolidating in the 7.2300-7.2600 range, lacking clear momentum for a breakout. Investors should closely monitor gains and losses within this support zone. If the dollar falls below 7.2260, combined with oversold signals from RSI and other technical indicators, it could create a short-term buying opportunity for a rebound. Conversely, a break above 7.2600 may signal further upward movement.

The People’s Bank of China’s policy orientation and its guidance to the foreign exchange market are also crucial, as interventions could alter the pace of USD/CNY movements.

Linkage Effects of Euro, Pound, Yen, and AUD

When the USD Index declines, its component currencies generally benefit. EUR/USD has risen to 1.0835; if it stabilizes here, it may challenge the psychological barrier at 1.0900. A breakout could further open upside potential.

For the pound, the Bank of England is expected to slow the pace of rate cuts compared to the Fed, providing relative support. In 2025, GBP/USD is likely to oscillate between 1.25 and 1.35, with the possibility of breaking above 1.40 if economic and policy divergence intensifies.

USD/JPY faces downside pressure. Japan’s wage growth hit a 32-year high (3.1% YoY in January), and weak inflation expectations may prompt the Bank of Japan to adjust policies, leading to a downtrend in USD/JPY through 2025. A break below 146.90 would increase the likelihood of testing lower levels.

The Australian dollar benefits from strong economic data (Q4 GDP +0.6%, trade surplus of 56.2 billion) and the cautious stance of the Reserve Bank of Australia on rate cuts. Under a weakening dollar environment, AUD/USD is expected to gain upward momentum.

The linkage effects among these currencies will ultimately reflect in the volatility of USD/CNY.

Investment Strategy: Practical Approaches to Capitalize on 2025 Exchange Rate Opportunities

Short-term phase (Q1-Q2): The market will show structural oscillations, with trading opportunities on swings.

Bullish scenario: Escalation of geopolitical conflicts or better-than-expected US economic data could push the dollar index rapidly to 100-103, lifting USD/CNY.

Bearish scenario: Continued Fed rate cuts amid delayed ECB policy shifts could see the dollar index fall below 95.

Aggressive traders might consider high selling in the 95-100 range, using MACD divergence, Fibonacci retracements, and other technical signals to catch reversals. Conservative traders should wait for clearer policy signals from the Fed.

Medium to long-term phase (post-Q3): The dollar may weaken gradually, with funds shifting toward non-US assets.

As the Fed’s rate hike cycle deepens and US Treasury yields lose their advantage, capital flows are expected to move toward high-growth emerging markets. If the global de-dollarization accelerates (e.g., BRICS countries promoting local currency settlement), the marginal weakening of the dollar’s reserve currency status will also be reflected in USD/CNY.

In this phase, gradually reduce dollar long positions and increase holdings of reasonably valued non-US currencies (JPY, AUD, etc.) or commodities (gold, copper).

The core logic of currency trading is a combination of “data-driven” and “event-sensitive” approaches. In forecasting USD/CNY, attention must be paid both to Fed policy developments and to changes in China’s economic fundamentals and central bank stance. Only by maintaining flexibility and discipline can one capture excess returns amid 2025’s currency fluctuations.