The U.S. Dollar: Current Trends and Future Outlook
Mr. Liu Jun, a U.S. stock market expert, discusses the recent decline of the U.S. dollar and its potential future trajectory, examining the factors influencing its value and offering advice for investors. He also highlights a special discount event for his Qiquan trading course.
Special Announcement: 618 Discount Event
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Qiquan Trading Course Details
The Qiquan course aims to provide investors with a professional yet easily understandable approach to trading, enabling them to navigate various market conditions with confidence. Designed for investors with different levels of experience, the course covers basic knowledge, practical applications, and trading models. It has been upgraded after three years of interviews and feedback.
Understanding the Dollar Index (DXY)
To understand the dollar's strength, it's essential to know the Dollar Index (DXY). This index measures the dollar's value against a basket of six major currencies, including the Euro (57.5% weighting), Yen, Pound, Canadian Dollar, Swiss Franc, and Swedish Krona. It indicates the dollar's position in the global currency system.
Historical Performance of the Dollar Index
Since 1999, the dollar index has experienced five distinct phases:
- 1999-2001: The Internet bubble fueled demand for dollar assets, driving the index upwards.
- 2002-2008: The bursting of the Internet bubble, a weak U.S. economy, financial deficits, trade imbalances, and the rise of new markets led to a six-year decline.
- 2008-2014: The financial crisis led to the U.S. dollar becoming a safe-haven asset, stabilizing its value.
- 2015-2020: U.S. economic recovery and interest rate hikes strengthened the dollar.
- 2021-Present: Initial strength due to the pandemic and aggressive interest rate hikes by the Federal Reserve is now showing signs of change, with the dollar index recently hitting a new low since 2022.
Factors Influencing the U.S. Dollar
The dollar's value is determined by supply and demand.
Supply Side Factors
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U.S. Trade Deficit: A persistent trade deficit increases the supply of dollars in the global market.
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U.S. Monetary Policy: Easing monetary policy increases dollar supply, leading to depreciation, while tightening reduces supply and strengthens the dollar.
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U.S. Fiscal Deficit: Government borrowing to cover deficits increases dollar supply, putting downward pressure on its value.
Demand Side Factors
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International Trade Settlement: The dollar is widely used for settling international trade, particularly for commodities.
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Central Bank Foreign Exchange Reserves: Many central banks hold dollars to stabilize their exchange rates and manage financial risks.
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Investment in U.S. Assets: The attractiveness of U.S. stocks and bonds drives demand for dollars.
Current Dollar Trend: A Deeper Look
The recent dollar strength was fueled by U.S. inflation and a positive monetary policy. However, the rise in the second half of 2024 was linked to the "Make America Great Again" policies that inspired investors.
However, starting in January 2025, the U.S. imposed tariffs on Canada and Mexico, leading to a trade war which led to a fall in the dollar's value. Investors were worried about a turn towards trade protectionism. The U.S. government continued to cut taxes and raise military spending, increasing the financial deficit and further weakening the dollar. This is mainly because the market lacked confidence in US dollar asset.
Future Dollar Development: Potential Scenarios
It's unlikely that the dollar will lose its reserve currency status entirely. For a currency to be overthrown, there must be both a subjugating event and a powerful substitute. These conditions are not currently met. The dollar's trend is heavily influenced by political uncertainty, especially related to potential tariffs and fiscal policy decisions.
Potential Turning Point
Despite short-term uncertainty, the pressure on dollar depreciation may soon ease. The U.S. economy remains resilient, and key economic indicators like CPI and PPI are declining. In contrast, the European economic outlook is less optimistic. Also capital will soon be in AI technology and there is no better place in the world than the US.
Also the U.S. Secretary of State Bessent supports the dollar.
With interest rates higher in the United States, the dollar will be more attractive.
Investment Strategy for Ordinary People
Judging the dollar's trend is very difficult, but investors don't have to worry. Here are the ways to deal with it:
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Long-Term Perspective: Believe in the power of the return of the military value and that the dollar will return to its normal range.
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Confidence in U.S. Assets: Focus on the growth of US stocks.
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Global Perspective: The next wave of technology led by AI will come to the US.
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Capital is the Main Force: If you don't vote for the dollar, what else can you vote for?
Final Reminder
The 618 Meitou Army Seven-Squad discount event is underway. Check the comment section for more information.
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