In 2024, the U.S. dollar index "outperformed" the foreign exchange market, gaining nearly 7% for the year on the back of the Federal Reserve's cumulative 100 basis points of interest rate cuts. Since the start of 2025, the dollar index has remained strong, breaking the 109 mark in early January, and as of now, it is still operating near the 108 mark, up more than 2% since December last year.  

Analysts believe that the comparative advantage of the US economic and interest rate outlook is the key factor driving the strength of the dollar index. For the recent strengthening of the US dollar, China Construction Bank financial markets analysis said, on the one hand, the US labor market is still resilient, the number of initial jobless claims released last week as of December 28 last year fell to an 8-month low, depressing the Federal Reserve interest rate cut expectations. On the other hand, the fundamentals of non-US economies such as the euro zone and the United Kingdom tend to be weak, and the relative advantages of US economic fundamentals support the dollar.

Under the pressure of the strong dollar, non-US currencies, especially those in Asia, have suffered heavy losses. At present, the exchange rates of Indonesia, Vietnam, India, Japan, South Korea and other countries are experiencing huge depreciation pressure. The Bloomberg Asia Currency Index fell as low as 89.0409 on Monday, its lowest since 2006. On January 7, the yen exchange rate continued to weaken, and the yen fell below the 158 mark against the dollar. The Indian rupee is hovering near a record low against the dollar, at 85.7033 at press time.

Many countries vowed to stabilize exchange rates amid volatile exchange rates. Japanese authorities first signaled foreign exchange intervention in 2025, expressing concern about sudden and unilateral movements in the currency market. Katsunobu Kato, Japan's finance minister, said on Tuesday that appropriate action would be taken if there was excessive volatility in currency markets. Mr. Kato said he was "deeply concerned" about recent moves in the yen, including those driven by speculators.

The Bank of Japan intervened several times last year, most recently in July 2024, when the yen fell below the 160 mark against the dollar. With the yen once again hovering near the levels that triggered the intervention against the dollar, any sudden movements in the exchange rate are likely to increase speculation about intervention.

Since November, the rupiah has repeatedly hit the key level of 16, 000 to the dollar. Indonesia's central bank announced an emergency "rescue" measure and repeatedly said it would take measures to maintain confidence in the foreign exchange market. Indonesia's central bank left its benchmark interest rate unchanged in December, saying monetary policy was focused on strengthening the rupiah's stability in response to heightened global economic uncertainty caused by the direction of U.S. policy and escalating geopolitical tensions in various regions. Looking ahead, Bank Indonesia will remain alert to rupiah exchange rate movements, inflation outlook and emerging economic dynamics as it considers the scope for further monetary easing.

Looking ahead, global markets are still shrouded in uncertainty over the Fed's interest rate outlook and US government policy expectations, and the foreign exchange market is hardly calm. Looking ahead to 2025, a strong dollar is the prevailing market expectation. But given that current expectations for U.S. government policy are fully priced, the threshold for sustained upside in the dollar index is already high, and short-term volatility is worth watching. On Monday, the dollar index fell sharply in response, falling more than 1% at one point, the biggest one-day decline since November last year, and non-U.S. currencies rebounded and came off their lows overnight.

Soochow Securities' overseas strategy team expects that the strong dollar will continue to weigh on exchange rates in 2025. The US dollar is expected to remain strong in 2025, influenced by the US economic performance, investment returns and tariffs. However, the pace may be different, in the first half of the year, as the Federal Reserve continues to cut interest rates and the impact of U.S. government policies on the economy and inflation has not yet fully manifested, the dollar is not expected to appreciate significantly, and it still maintains a strong range of 100 to 105. The team believes that under the influence of the strong dollar, the remaining currencies are expected to be generally under pressure. Rhythmically, in the first half of the year, under the background of the Federal Reserve's interest rate cut and the tariff policy has not yet fully landed, the suppression of the US dollar on national currencies was weaker than in the second half of the year.

"Changes in Fed and US government policy expectations in recent weeks have supported the dollar, which we continue to believe is overvalued." The Office of the chief investment officer at UBS Wealth Management said in a statement that while the dollar is not expected to weaken significantly in the near term, investors should take the opportunity of further dollar strength to sell the dollar on rallies and diversify into other currencies.