What impact does the fluctuation of the US dollar index bring to the foreign exchange market?

Recently, the US index has been fluctuating violently within the range of 99.828 to 101.81, which reflects profound adjustments in the global economic landscape. the "anchor" of the global monetary system, every fluctuation of the US dollar index exerts a restructuring impact on cross-border capital flows, international trade pricing, and emerging debt risks.

The US dollar index is composed of six currencies, including the euro (57.6%), the Japanese yen (13.6%), and the British (11.9%), and its fluctuations essentially mirror the economic cycles of the world's major economies. On May 6, 2025, the US index fell by 0.2% to 99.828 in a single day, triggered by the US April S&P Global Services PMI dropping to 0.8, far below the market expectation of 51.2. As the pillar of the US economy, which accounts for more than 80%, the weaken growth momentum of the service sector directly diminishes the attractiveness of US dollar assets. Meanwhile, the Eurozone manufacturing PMI rebounded to 47.3, and German orders increased by 3.1% month-on-month, indicating the emergence of economic resilience that pushed the euro to 1.1313 against the US dollar exerting downward pressure on the US dollar index. The divergence of monetary policy expectations further exacerbated the volatility. According to the Chicago Mercantile Exchange, the market probability of the Reserve cutting interest rates in June soared from 35.1% a week ago to 70.2%, but the core inflation rate still remains above the % target range, making the timing of the rate cut highly uncertain. This "data-dependent" decision-making path results in a "see-saw" effect of the dollar index, which rebounds when economic data is strong and falls when policy expectations are loose.

The fluctuations of the US dollar index reshape the global foreign exchange market through three paths Emerging market currencies face a "vulnerability paradox." When the US dollar strengthens, currencies with high foreign debt, such as the Argentine peso and the Turkishra, face capital outflow pressure, but the RMB exchange rate moves independently. On May 20, 2025, the mid-price of the RMB reported at 7.1931, appreciating by 1.2% compared to the beginning of the year. This is attributed to the fact that China's account surplus as a percentage of GDP has remained stable at above 2.5%, and the central bank has precisely regulated the liquidity of the offshore market. Commodity currencies a "double-edged sword effect." The rare positive correlation between the Australian dollar and the US dollar index is rooted in the fact that Australia's iron ore exports account for than 60%, and the pace of China's economic recovery directly affects its terms of trade. Since May, China's steel PMI has rebounded to 2.1, pushing the Australian dollar against the US dollar to 0.6481, forming a special pattern of co-fluctuation with the US dollar index Safe-haven assets experience "alternative rotation." When the US dollar index fell below the 100 mark, the Japanese yen, as a traditional safe-haven currency did not strengthen significantly, but instead, gold prices broke through $3,181.4 per ounce, reaching a new high in 2025. This "-dollarization" demand for safe havens reflects a structural change in which global central banks have increased their gold purchases by 38% year-on-year

The current exchange market faces three major uncertainties. The "black swan" effect of geopolitics, the continued Russia-Ukraine conflict has led to the de-coupling of the Russian ruble exchange rate and the US dollar index, with the ruble maintaining a range against the US dollar at around 82.5 in May, but the proportion of gold reserves in the Russian Central Bank has risen to 25%, and this "resource gold" risk-averse model may trigger emerging markets to follow suit. The "disruptive pricing" of the technological revolution, AI computing power demand has pushed the price of copper to break through $12,000 per ton, and the correlation between the Chilean peso exchange rate against the US dollar and the LME copper price has risen to 0.87, and the pricing right of bulk commodity currencies has begun to tilt towards resource-producing countries. The "catfish effect" of digital currencies, the Federal Reserve's digital currency pilot has entered its third phase, and if it is officially launched in 2026, it may reconstruct the dollar pricing mechanism under the SWIFT system, leading to the adjustment pressure of the US dollar index calculation weight.

Faced with a complex environment, investors need to build a three-dimensional strategy framework. In terms of macro hedging, allocate 10-year US Treasury futures to hedge the volatility of the US dollar index, and capture the geopolitical risk premium through COMEX gold options. In terms of industry mapping, long the AUD/JPY arbitrage portfolio to capture the misalignment opportunity between China's infrastructure demand and Japan's re-industrialization process. In terms of micro arbitrage, take advantage of the price difference between the NDF of the RMB and the onshore exchange rate, and carry out time arbitrage through offshore RMB bonds.

Standing at the historical node of 2025, the US dollar index is no longer a simple exchange rate indicator, but has evolved into a barometer of changes in the global economic governance system. As the AI revolution restructures the production function, geopolitical conflicts reshape the supply chain, and digital currencies challenge the payment system, the pricing logic of the exchange market is experiencing a once-in-a-century change. Only by penetrating the data appearance and grasping the resonance point of the economic cycle and institutional reform can we grasp the deterministic opportunity in the fluctuation.