Us Dollar Index Definition

Us Dollar Index Definition


The other primary index used to the strength of the USD is the U.S. Created in 1973, it is composed of a basket of six currencies—the euro , Japanese yen , British pound , Canadian dollar , Swedish krona , and Swiss franc . The trade-weighted dollar is used to determine the U.S. dollar purchasing value, as well as to summarize the effects of dollar appreciation and depreciation against foreign currencies. When the value of the dollar increases, imports to the U.S. become less expensive, while exports to other countries become more expensive. As a measure of the dollars strength, a gain in the USDX should be coupled with a decline in the opposite currencies and vice versa.


  • Participating countries settled their equilibriums in US dollars as a feature of the arrangement.
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  • The content created by our editorial staff is objective, factual, and not influenced by our advertisers.
  • The ICE U.S. Dollar Index is calculated in real-time approximately every 15 seconds.
  • The dollar trade-weighted index shows how the U.S. dollar is doing against its trading partners.

The Index began in 1973 with a base of 100, and qualities from that point forward are comparative with this base. It was set up not long after the Bretton Woods Agreement was disintegrated. Participating countries settled their equilibriums in US dollars as a feature of the arrangement. At the same time, the USD was entirely convertible for gold at a pace of US $35/ounce.

What It Means for Individual Investors

Therefore, if we take the current of 98.50, one contract would be worth $98,500. The Bretton Wood Agreement created a new monetary system in 1944, after which the U.S. Under the agreement, the countries would keep fixed exchange rates between their own currency and the U.S. The information on this web site is not targeted at the general public of any particular country.

monetary forms

These monetary items are right now exchanged on the New York Board of Exchange. Financial backers can utilize the Index to support general cash moves or guess. The Index is additionally accessible by implication as a component of exchange exchanged assets , alternatives, or shared assets. Since the index is so heavily weighted to the value of the euro, it is often said that the index moves comparably in an inverse correlation with the popular EUR/USD currency pair.

Trading DXY with

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Posted: Mon, 27 Feb 2023 22:43:00 GMT [source]

China’s yuan and Mexico’s peso could replace the and Swedish Krona because China and Mexico are significant partners of the United States. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate.

How Economic Policy Affects the Dollar’s Value

It can be used by forex traders looking for a tool that gauges whether it’s time to buy or sell currencies based on what’s happening with other world markets. The US Dollar Index, also known as DXY, is used by traders seeking a measure of the value of USD against a basket of currencies used by US trade partners. The index will rise if the Dollar strengthens against these currencies and will fall if the Dollar weakens against these currencies.

Calculations were actually made prior to the floating of the US dollar on global forex markets in 1973, but at commencement, the parity value of ‘100.0’ marked its introduction. A dotted line denotes this parity value over the ensuing time period. From its beginning, it has been a rollercoaster ride, ascending to as high as 160 in 1984 and descending to as low as nearly 70 in 2007. The Great Recession produce a great deal of economic carnage, but the US dollar has been roaring back since its low point prior to the financial crisis. Investors now use indices to efficiently measure, isolate, and gain access to risk premia factors, thematic exposure, enhanced beta and alpha through rigorous and transparent rules-based index products.

A Better Measure of the U.S. Dollar?

The demand for the currency might decline during times where traders have high risk appetite. The annual survey of major trading partners versus the U.S. dollar as reported by the Federal Reserve. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools. We’re also a community of traders that support each other on our daily trading journey. Now that we know what the basket of currencies is composed of, let’s get back to that “geometric weighted average” part.

You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy. The dollar index tracks the relative value of the U.S. dollar against a basket of important world currencies. If the index is rising, it means that the dollar is strengthening against the basket – and vice-versa. 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.

There has been only one altering of the basket – when the euro was created and adopted as a national currency of several countries. Prior to that change, the US dollar index contained ten currencies – the five current ones, apart from the euro, plus the West German mark, the French franc, the Italian lira, the Dutch guilder, and the Belgium franc. For example, if the U.S. dollar appreciates against the Mexican peso, it’s probably due to Mexico’s policies, not U.S. policies. If the Trade-Weighted U.S. Dollar Index increases, then the dollar is strengthening against the currencies of a basket of its main trading partners, and that’s probably due to changes in U.S. policies.

  • Since the 1980s, it has become tradable as a futures contract, and speculators have been using it as a way to speculate on the movement of the US Dollar against a basket of other major currencies.
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  • The demand for the Dollar increases whenever the US exports its products and services.

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. Specific currencies in the USDX might be replaced over the coming years if the index needs to represent the US’s main trading partners.


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