Core Viewpoint - The article discusses the unusual characteristics of the current dollar cycle, highlighting its resilience and divergence from historical patterns, suggesting that the dollar may have entered a downward cycle since 2025 due to structural changes in the U.S. economy and global dynamics [1][46]. Historical Review of Dollar Cycles - Since the collapse of the Bretton Woods system in 1973, the dollar has experienced three major appreciation cycles, with significant increases in the DXY index during each period [2][5]. - The current dollar appreciation cycle began in 2008, lasting 17 years and resulting in a 40% increase, marking it as the longest cycle since the Bretton Woods system's dissolution [3][5]. Current Characteristics of the Dollar Cycle - The dollar's peak values have shown a downward trend over the years, indicating a decreasing relative strength of the U.S. economy globally [6]. - The current cycle exhibits three unusual divergences: a decline in the dollar's share of global reserves, a lack of impact from expanding fiscal and trade deficits, and a strong dollar despite rising inflation in the U.S. [7][10][12]. Threefold Analysis Framework - The dollar's exchange rate is fundamentally influenced by the relative performance of the U.S. economy compared to other major economies [15]. - Monetary policy from the Federal Reserve significantly impacts the dollar's strength, with tight monetary policies historically supporting dollar appreciation [20]. - Capital flows are closely linked to the dollar index, with geopolitical factors also playing a crucial role in influencing these flows [21]. Feedback Mechanisms - The dollar's appreciation has asymmetric effects on the global economy, increasing financing costs for other countries while benefiting the U.S. economy [21][22]. - Positive feedback mechanisms exist where dollar appreciation leads to worsening debt burdens for other economies, further driving capital flows into the U.S. [22]. Current Trends and Future Outlook - Since 2025, there are signs that the dollar may be entering a downward cycle due to weakening relative advantages of the U.S. economy and declining risk appetite for dollar assets [34][38]. - The structural changes in the U.S. asset and liability landscape suggest a strong motivation for the U.S. to seek dollar depreciation to manage its growing net liabilities [35][36]. - Market sentiment is shifting, with a notable decrease in net long positions on the dollar, indicating a growing bearish outlook [38][40]. Conclusion - The current dollar cycle is characterized by unprecedented features, with the potential for a downward trend driven by both domestic and international factors, including the competitive landscape in technology and economic policies [45][46].