DXY, the US dollar index
The US dollar index (USDX, DXY, DX) is an index (or measure) of the value of the US dollar against a basket of foreign currencies, which is a basket of the currencies of US trading partners. The index rises when the US dollar gains ‘strength’ (value) against other currencies.
The index is designed, maintained and published since 1985 by the US exchange operator ICE (Intercontinental Exchange, Inc.) with the name “U.S. Dollar Index” a registered trademark.
DXY is a weighted geometric mean of the value of the dollar against the following selected currencies:
Euro (EUR), 57.6% weight
Japanese yen (JPY) 13.6% weight
Pound sterling (GBP), 11.9% by weight
Canadian dollar (CAD), 9.1% weight.
Swedish krona (SEK), 4.2% weighting
Swiss franc (CHF) 3.6% weight
USDX started in March 1973, shortly after the dismantling of the Bretton Woods system. Initially, the value of the US dollar index was 100,000. Since then, this index has traded as high as 164.7200 in February 1985 and as low as 70.698 on March 16, 2008.
The US dollar index was given a base value of 100,000 when it started. This means that a value of 90,000 represents a -10% decrease in the value of the dollar relative to the currencies in the basket (90,000 – 100,000), while a value of 110,000 represents a 10% increase in value (110,000 – 100,000).
The composition of the ‘basket’ has changed only once, when several European currencies were devalued by the euro in early 1999. Some commentators have said that the composition of the “basket” is overdue for revision as China, Mexico, South Korea and Brazil are currently major trading partners that are not included in the index while Sweden and Switzerland continue as part of the index.
Before the introduction of the euro, the index also included five other European currencies. The euro accounts for 57.6% of the weighted value (the same overall percentage as the currencies it replaced).
|Year (last business day)||DXY Closing price||Factors that drove the value of the dollar|
|1967||121.79||The gold standard locked the dollar at 35 USD per troy ounce|
|1969||121.74||The dollar reached 123.82 on September 30.|
|1971||111.21||Wage price control|
|1973||102.39||The gold standard ended. DXY was created in March.|
|1975||103.51||The recession ends|
|1976||104.56||The FED cut interest rates|
|1978||86.50||Fed raised interest rate to 20% to stop inflation|
|1981||104.69||Reagan’s tax cuts|
|1982||117.91||The recession ends|
|1983||131.79||Tax increase. Increased defense funding|
|1985||123.55||The record 163.83 was reached on March 5.|
|1988||92.29||Fed raises interest rates|
|1989||93.93||Savings & Loans crisis|
|1993||97.63||Balanced Budget Act.|
|1995||84.83||Fed raises interest rates|
|1997||99.57||Long-Term Capital Management goes bankrupt|
|1998||93.95||Glass-Steagall was repealed|
|1999||101.42||The Y2K scare|
|2000||109.13||The bursting of the tech bubble|
|2001||117.21||DXY rose to 118.54 after the September 11 attacks.|
|2002||102.26||The euro is launched as a hard currency at $0.90.|
|2003||87.38||The Iraq war. Jobs and Growth Tax Relief Reconciliation Act|
|2005||90.96||The war on terror doubled the debt and weakened the dollar.|
|2007||76.70||The euro rose to 1.47|
|2008||82.15||Low of 71.30 on March 17th|
|2009||77.92||ECB cuts interest rates|
|2010||78.96||Quantitative Easing II|
|2011||80.21||Operation Twist, Debt crisis|
|2012 – 2013||79.77||Quantitative Easing III and IV. Fiscal cliff.|
|2013||80.04||Government shutdown. Debt crisis, Taper tantrum|
|2014||90.28||Ukrainian crisis, Greek debt crisis,|
|2015||98.69||The Fed raised interest rates|
|2018||96.17||The Dow Jones falls.|
|2020||102.57||Covid19 outbreak. Massive quarantine is slowing down the global economy.|
ICE provides live feeds for Dow Futures that appear on Bloomberg.com, Money, CNN.com, DollarIndex.org. USDX is updated when US dollar markets are open, from Sunday evening New York City local time (early Monday morning Asia time) for 24 hours a day until late Friday afternoon New York City local time.
The US dollar index is calculated with this formula: USDX = 50.14348112 × EURUSD-0.576 × USDJPY0.136 × GBPUSD-0.119 × USDCAD0.091 × USDSEK0.042 × USDCHF0.036 
The index can be traded as a futures contract on the ICE exchange. It was also possible to trade this index as exchange-traded funds (ETFs), options, CFDs and mutual funds.
Why is this index so important for financial market participants?
The US dollar index is important for traders both as a market in its own right and as an indicator of the relative strength of the US dollar around the world. It can be used in technical analysis to confirm trends related to the following markets, among others:
- Commodities priced in USD
- Currency pairs that include the US dollar (such as those used to calculate the value of the index)
- Stocks and indices.
Commodity prices tend to fall (at least in nominal terms) when 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 the USD is the base currency, and the opposite direction if it is the quote currency – although these ‘rules’ do not always apply.
For stocks and indices, the picture is more complicated, although US exporters would generally find that their exports are less competitive internationally when the dollar is strong, and more competitive when it is weaker. Their share prices often reflect changes in the value of the dollar.
Many traders also use the index to hedge risk – for example, to offset some of the risk associated with a long USD/JPY position by going short the Dollar index.
How has the index evolved?
In the 1970s, the index fluctuated between 80 and 110 as the US economy struggled through recession and rapidly rising inflation. When the Federal Reserve raised interest rates to lower inflation in the late 1970s, money flowed into the US dollar – causing the US dollar index to rise. It reached 164,720 in February 1985, its highest level ever.
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 steps to make the currency more competitive with five countries agreeing to manipulate the dollar in foreign exchange markets as part of the ‘Plaza Accord’. The US Dollar Index fell by 51% over the next four years.
Since then, the US Dollar Index has been tracking economic developments and liquidity flows. For example, it rose as the current account generated a surplus in the 1990s, fell as US debt levels rose in the 2000s, and rallied as investors flocked to the relative safety of the dollar during the Great Recession.
What affects the price of the index?
The USD index is affected by the supply and demand of the US dollar and currencies that make up the basket – as these factors affect the price of each currency pair in the formula used to calculate the value of the US dollar index.
The supply and demand of currencies is strongly influenced by the monetary policy – especially interest rates – set by the central bank in each country. Other factors include inflation, economic developments, credit ratings, market sentiment and foreign affairs.
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