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What Is the U S. Dollar Index USDX and How to Trade It

what is dxy

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. The index is currently calculated by factoring in the exchange rates of six foreign currencies, which include the euro (EUR), Japanese yen (JPY), Canadian dollar (CAD), British pound (GBP), Swedish krona (SEK), and Swiss franc (CHF). 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 U.S. Dollar Index has risen and fallen sharply throughout its history. Over the last several years, the U.S. dollar index has been relatively rangebound between 90 and 110. Check out the latest USD Index price with our chart and follow the latest news and analysis from our DailyFX experts. 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%).

The contents of the basket of currencies have only been changed once since the index started when the euro replaced many European currencies previously in the index in 1999, such as Germany’s predecessor currency, the Deutschemark. The USD Index is affected by the supply of and demand for the US Dollar and currencies that make up the basket – as these factors influence the price of each currency pair in the formula used to calculate the US Dollar Index’s value. The US Dollar Index was started by the Federal Reserve in 1973 and https://www.currency-trading.org/ 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). 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. Simply put, if the USDX goes up, that means the U.S. dollar is gaining strength or value when compared to the other currencies.

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 https://www.topforexnews.org/ the basket – and vice-versa. For instance, the Invesco DB U.S. Dollar Index Bullish Fund (UUP) is an ETF that tracks the changes in value of the US dollar via USDX future contracts.

How is the US Dollar Index Calculated?

Other factors include inflation, economic performance, credit ratings, market sentiment and foreign affairs. 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. In the coming years, it is likely currencies will be replaced as the index https://www.forexbox.info/ strives to represent major U.S. trading partners. 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. The index started in 1973 with a base of 100, and values since then are relative to this base.

what is dxy

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. The below chart shows some of the major events that affected the USDX price since 2005. Here we can see that USD is the base currency in four of the six currency pairs included, with these given a positive value for the purposes of the calculation. The Euro and Pound are the base currency for the two others, with these given a negative value.

What Is the U.S. Dollar Index (USDX) and How to Trade It

Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors. We advise you to carefully consider whether trading is appropriate for you based on your personal circumstances. It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material.

  1. An overvaluation of the USD led to concerns over the exchange rates and their link to the way in which gold was priced.
  2. 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.
  3. 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’.
  4. Simply put, if the USDX goes up, that means the U.S. dollar is gaining strength or value when compared to the other currencies.
  5. Federal Reserve in 1973 after the dissolution of the Bretton Woods Agreement.

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. An overvaluation of the USD led to concerns over the exchange rates and their link to the way in which gold was priced. President Richard Nixon decided to temporarily suspend the gold standard, at which point other countries were able to choose any exchange agreement other than the price of gold.

US Dollar Index (DXY) Price Value Chart Today

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 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 will go up or down in price. Read more on how to trade US Dollar Index for technical strategies and tips. Supply and demand for currencies is heavily influenced by the monetary policies – particularly the interest rates – set by the central bank in each country.

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 USDX uses a fixed weighting scheme based on exchange rates in 1973 that heavily weights the euro. As a result, expect to see big moves in the fund in response to euro movements.

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In 1973, many foreign governments chose to let their currency rates float, putting an end to the agreement. The U.S. dollar index allows traders to monitor the value of the USD compared to a basket of select currencies in a single transaction. It also allows them to hedge their bets against any risks with respect to the dollar. 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). 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.

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. 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 Wisdom Tree Bloomberg U.S. Dollar Bullish Fund (USDU) is an actively-managed ETF that goes long the U.S. dollar against a basket of developed and emerging market currencies. ICE provides live feeds for Dow Futures that appear on Bloomberg.com and CNN Money. Dollar markets are open, which is from Sunday evening New York City local time (early Monday morning Asia time) for 24 hours a day to late Friday afternoon New York City local time.