Us Dollar Index Definition


After coming off the gold standard the Bretton Woods Agreement supported, the Dollar Index provided a method for markets to establish the globe’s reserve currency value. The US Dollar Index is widely used as a measure of sentiment toward the US dollar. Discover what the Dollar Index is, which currencies are in the basket and how you can use it to inform your forex trades. Shortly after the end of Bretton Woods came the end of the gold standard, which had tied the value of USD directly to the precious metal. The dollar index provided a method for markets to establish the value of the world’s reserve currency. Open your demo account, which comes with virtual capital you can use to trade DXY alongside 1,000s of other live markets.


Using a price index showing, for example, that average consumer prices increased by 50 percent between those years, it becomes clear that $1,000 in 1980 bought what $667 bought in 1970. Thus, even if total income actually doubled, real income would double only if prices remained constant. Constant-dollar value (also called real-dollar value) is a value expressed in dollars adjusted for purchasing power. Constant-dollar values represent an effort to remove the effects of price changes from statistical series reported in dollar terms. The result is a series as it would presumably exist if prices were the same throughout as they were in the base year-in other words, as if the dollar had constant purchasing power.

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Unlike the DXY’s static composition, BBDXY is dynamic, with an annual rebalancing process that captures the changing state of currency markets. The BBDXY Index data starts from Dec 31, 2004, with a base level of 1000. Its composition is updated annually and represents a diverse set of currencies that are important from a global trade and liquidity perspective. The Index was adjusted once when the euro was introduced as the common currency for the European Union bloc of countries. Because not every country is the same size, it’s only fair that each is given appropriate weights when calculating the U.S. dollar index. Today, the company is among the largest exchange groups in the world.

What Does the Dollar Index Tell You?

You might also adjust your long and short positions based on whether the USDX is up or down. For example, if the index is bullish, you might want to reappraise any short market positions they hold in USD/JPY and USD/CHF. We’re sorry, but the service you are attempting to access is not intended for residents of your country.

  • Might prove slightly more difficult, as you would have to take into consideration data and information from various countries.
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  • The Federal Reserve has begun raising interest rates to combat inflation, while other central banks are taking a more cautious approach.
  • Education – 10 Min Read Types of CFDs and CFD trading examples Milan Cutkovic Contracts for difference are popular assets for traders globally as they provide a way to access a wide variety of financial markets.

The weight of each currency here is reassessed much more frequently compared to the US dollar index that is traded on the ICE. According to some economists, the larger pool of underlying currencies makes this measurement of the US dollar value more accurate. Also worth taking into consideration is that the trade-weighted dollar index includes currencies of emerging economies, whose trade activity is bound to continue increasing at a considerable pace. Below you can see the up-to-date list of all currencies included in the index and their weight. The Trade-Weighted U.S. Dollar Index is calculated by the Federal Reserve Bank and measures changes in the dollar’s value and competitiveness versus America’s major trading partners. The Bloomberg Dollar Spot Index tracks a more representative basket of currencies by considering global currency market liquidity and trading partners of the U.S.

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Plan your of the US Dollar Index by tracking its price in the chart and keep up with the latest market movements with news, advice pieces, and the dollar index forecast. The Federal Reservecreated an official index 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.


When you take into account these timing differences, the two charts are fairly consistent in their representations. How can a forex trader take advantage of the eventual decline in this index? In this article, we attempt to find answers to these questions, while also providing more background information related to the Dixie. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

DXY Overview

A negative move indicates that the has weakened against its partner currencies, which is usually good for exports. 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. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. The US Dollar Index measures the value of the United States dollar relative to a basket of other currencies, including the currencies of some of the US’s major trading partners.

Notwithstanding, the most notable cash container is the US dollar index . Over the last few months especially, there’s been a lot of focus in the world of Currency Trading upon the state of the US Dollar. No matter what your opinion is of the Greenback, it is still, without question, regarded as the world’s primary reserve currency and holds its weight of recognition across the board. By Ambar Warrick — Most Asian currencies were muted on Friday amid growing concerns over the path of U.S. monetary policy, while the Chinese yuan was among the best… Over 2014 foreign currencies lost an average of 11.34% according to the U.S. Note that the dollar appreciating 12.79% is not the same as foreign currencies losing 12.79%.



Posted: Thu, 02 Mar 2023 22:17:07 GMT [source]

She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. ICE provides live feeds for Dow Futures that appear on and CNN Money. Dollar markets are open, which is from Sunday evening New York City local time for 24 hours a day to late Friday afternoon New York City local time. The USD is the abbreviation for the U.S. dollar, the official currency of the United States of America and the world’s primary reserve currency.

How the Dollar Index works and what currencies are in it

The weightings ensure that important currencies – such as the euro – affect the Dixie’s price more than lesser markets like the krona. The U.S. Dollar Index is a relative measure of the U.S. dollars 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.

It gives importance, or, to currencies most widely used in international trade, rather than comparing the value of the U.S. dollar to all foreign currencies. Since the currencies are weighted differently, changes in each currency will have a unique effect on the trade-weighted dollar and corresponding indexes. Apart from helping you find divergences, the dollar index might be traded in another, more standard, way. Just like when a trader is not sure whether a companys stock will underperform or not, but overall the stock market is performing solidly, he will refer to purchasing an index. The exchange rate measures the relative strength or weakness of two different currencies.

A currency basket is comprised of a mix of several currencies with different weightings. Constant or real dollars are terms describing income after adjustment for inflation. The Dictionary of Business and Economics defines constant dollar values and real income as shown below. The U.S. Census Bureau uses the Bureau of Labor Statistics’ Consumer Price Index for all Urban Consumers Retroactive Series (R-CPI-U-RS) for all items, not seasonally adjusted, for 1978 through 2021. For 1967 to 1977, the Census Bureau uses estimates provided by BLS from the CPI-U-X1 series.

As you can see, Eurodollar is by far the biggest pair represented on the DXY, with a larger weighting than the other currencies added together. This reflects the fact that it replaced several different European currencies, plus the European Union’s status as a key trading partner of the US. One poplar way to trade the dollar index is as a hedge against moves in the US dollar.

ICE operates 13 regulated exchanges, including ICE futures and OTC exchanges in the US, Canada, Europe, and Singapore. It also is the parent company of the well-known New York Stock Exchange. Rather than buying or selling several U.S. dollar “pairs” at the same time, you would trade the overall index that would rise and fall in line with the overall sentiment regarding the U.S. dollar. U.S. dollar pairs are the dollar paired with one other currency, for example, “USD/GBP” for the U.S. dollar traded against the British pound. Inflationor deflation of any currency, monetary policy, geopolitical conflicts, and export/import ratios, just to name a few.

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