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The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to a basket of foreign currencies. Federal Reserve in 1973 after the dissolution of the Bretton Woods Agreement. It is now maintained by ICE Data Indices, a subsidiary of the Intercontinental Exchange (ICE). The USDX is based on a basket of six currencies with different weightings (see above). The index calculation is simply the weighted average of the U.S. dollar exchange rates against these currencies, normalized by an indexing factor (which is ~50.1435).

Over the last several years, the U.S. dollar index has been relatively rangebound between 90 and 110. The following chart shows the U.S. dollar index value from the elimination of the gold standard in January 1971 to January 2022. Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. Check out the latest USD Index price with our chart and follow the latest news and analysis from our DailyFX experts. Wayne Duggan has a decade of experience covering breaking market news and providing analysis and commentary related to popular stocks.

These financial products currently trade on the New York Board of Trade. Investors can use the index to hedge general currency moves or speculate. The index is also available indirectly as part of exchange-traded funds (ETFs) or mutual funds. An index value of 120 suggests that the U.S. dollar has appreciated 20% versus the basket of currencies over the time period in question.

U.S. Dollar Index

The Federal Reserve created an official index (DXY) in 1973 to keep track of the dollar’s value. The dollar changes constantly in reaction to shifts in the ongoing forex trades. Before the creation of the dollar index, the dollar was fixed at $35 per ounce of gold, and it had been that way since the 1944 Bretton Woods Agreement.

Initially, it included the Japanese yen, British pound, Canadian dollar, Swedish krona, Swiss franc, West German mark, French franc, Italian lira, Dutch guilder, and Belgian franc. Supply and demand for currencies is heavily influenced by the monetary policies – particularly the interest rates – set by the central bank in each country. Other factors include inflation, economic performance, credit ratings, market sentiment and foreign affairs. The US Dollar Index – known as USDX, DXY, DX and USD Index – is a measure of the value of the United States Dollar (USD) against a weighted basket of currencies used by US trade partners. The index will rise if the Dollar strengthens against these currencies and fall if it weakens. Keep reading to learn more on the US Dollar Index, how it is calculated, and what affects it price.

What Does the Dollar Index Tell You?

Before the Euro, the index also included five other European currencies. The US Dollar Index was started by the Federal Reserve in 1973 and has been managed by ICE Futures US since 1985. It compares the value of the US Dollar against six currencies used by major US trade partners – the Euro (EUR), Japanese Yen (JPY), Pound Sterling (GBP), Canadian Dollar (CAD), Swedish Krona (SEK) and Swiss Franc (CHF). The higher interest rates rise, the more demand there is for U.S. dollars from foreign investors, and that applies further upward pressure on the USDX. The Fed’s top priority in 2022 has been bringing down inflation from multi-decade highs, and its best weapon has been raising interest rates.

1. Over the last several years, the U.S. dollar index has been relatively rangebound between 90 and 110.
2. The below chart shows some of the major events that affected the USDX price since 2005.
3. It is possible to incorporate futures or options strategies on the USDX.
4. The EUR/USD faces a crucial period with the ECB rate decision today, setting the stage for a directional move.The US dollar weakening suggests a potential short-term peak,…
5. The index is affected by macroeconomic factors, including inflation/deflation in the dollar and foreign currencies included in the comparable basket, as well as recessions and economic growth in those countries.

News & World Report and a regular contributor for Forbes Advisor and USA Today. “Foreign currency conversion can have a positive or negative effect on operating results. Now, the dollar index is very elevated and will ultimately serve as a headwind for overseas business of U.S. corporations,” Bevins says. Since 1985, the dollar index has been calculated and maintained by Intercontinental Exchange (ICE). The euro is, by far, the largest component of the index, making up 57.6% of the basket. The weights of the rest of the currencies in the index are JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%).

Since then, the US Dollar Index has tracked economic performance and liquidity flows. For example, it rose as the current account generated a surplus in the 1990s, fell as US debt levels increased in the 2000s, and rallied as investors flocked to the relative safety of the Dollar during the Great Recession. A strong dollar means other global currencies have been relatively weak, which Lynch says exacerbates inflationary pressures and financial market volatility. The USDX allows traders and investors to monitor the purchasing power of the U.S. dollar relative to the six currencies included in the index’s basket.

It is likely in the future that currencies such as the Chinese yuan (CNY) and Mexican peso (MXN) will supplant other currencies in the index due to China and Mexico being major trading partners with the U.S. Traders can also use leveraged currency ETFs to bet against weakening international currencies. The ProShares UltraShort Euro (EUO) is designed to generate daily returns equal to double the inverse of the https://www.day-trading.info/ daily performance of the euro versus the U.S. dollar. There are several popular exchange-traded funds (ETFs) that track the USDX. UUP has more than $2 billion in assets under management and is extremely liquid, averaging more than 4.1 million shares of daily trading volume. Investors also use the dollar index as a litmus test for U.S. economic performance, particularly when it comes to imports and exports.

US Dollar Index Futures Overview

In the equation above, the euro has the most weight, followed by the Japanese yen and the British pound. According to many analysts’ forecasts, the price of gold may increase in 2024. Octa explains in the article what factors will influence the dynamics of the gold price and what will… Commodity prices tend to fall (at least nominally) as the Dollar increases in value – and vice versa. Currency pairs, on the other hand, generally move in the same direction as the Dollar Index if USD is the base currency, and opposite direction if it is the quote currency – though these ‘rules’ do not always hold true. Goldman Sachs estimates S&P 500 companies generate about 29% of their total revenue from outside the U.S.

It was established shortly after the Bretton Woods Agreement was dissolved. As part of the agreement, participating countries settled their balances in U.S. dollars (which was used as the reserve currency), while the USD was fully convertible to gold at a rate of $35/ounce. The US Dollar Index can be traded using futures and options or, where permitted, spread betting and CFD trading can also be used to speculate on whether the USDX https://www.forexbox.info/ will go up or down in price. Read more on how to trade US Dollar Index for technical strategies and tips. However, such a strong Dollar caused problems for US exporters, who found that their goods were no longer as competitive internationally. As a result, the US government took action to make the currency more competitive with five countries agreeing to manipulate the Dollar in the forex markets as part of the ‘Plaza Accord’.

The U.S. Dollar Index

Dollar Index (USDX), which helps investors understand the relative strength of the dollar. This key index helps them see how the dollar’s value impacts consumer prices, demand for imports and exports, and the condition of the economy as a whole. The U.S. Dollar Index (USDX) is a relative measure of the U.S. dollars (USD) strength against a basket of six influential currencies, including the Euro, Pound, Yen, Canadian Dollar, Swedish Korner, and Swiss Franc. The USDX can be used as a proxy for the health of the U.S. economy and traders can use it to speculate on the dollar’s change in value or as a hedge against currency exposure elsewhere. Professional investors use futures and options contracts to invest in the Dollar index. ICE offers dollar index futures for trading 21 hours a day on their platform.

“Until dollar strength abates, we fail to see the catalyst for a sustainable recovery in global risk assets,” Lynch says. Asher Rogovy, chief investment officer at https://www.forex-world.net/ Magnifina, says the USDX also has some shortcomings that investors should understand. The U.S. Dollar Index has risen and fallen sharply throughout its history.