The U.S. Dollar Index (USDX, DXY, DX, or, informally termed “the Dixie”) is a measure of the value of the United States dollar relative to a basket of foreign currencies. It is often used as an indicator of the overall strength or weakness of the U.S. dollar in the foreign exchange market.
Changes in the index value reflect shifts in the relative strength of the U.S. dollar compared to the other currencies in the basket. If the index rises, it suggests that the U.S. dollar is strengthening against the other currencies, and if it falls, it indicates a weakening dollar.
The index is calculated using a geometric mean of the exchange rates between the U.S. dollar and a selected specific group of six major currencies.
A common misconception is the component currencies reflect what are commonly thought of as including the currencies that comprise the so called “majors”. However, the currencies that make up this basket are, the Euro (EUR), Japanese yen (JPY), British pound (GBP), Canadian dollar (CAD), Swedish krona (SEK), and Swiss franc (CHF) ONLY.
These currencies are then weighted based on their importance in international trade and financial markets to create a quoted overall numerical value, and changes in this value may plotted on a chart as with any other tradable asset class over a set period of time.
Here are the weightings of currencies that make up the USD index currently:
Please keep in mind that these weightings are subject to change, albeit infrequently, and it’s recommended to refer to reliable financial sources for the most up-to-date information on the U.S. Dollar Index components and their respective weightings.
The impact of the USD on other asset classes
The U.S. Dollar Index (USDX) can have a significant impact on various asset classes, as changes in the value of the U.S. dollar relative to other major currencies can influence global financial markets and economic conditions. Here’s how the USDX can affect different asset classes:
It’s important to note that market dynamics are complex and influenced by a multitude of factors only one of which may be the USD. Other factors such as economic data, geopolitical events, and central bank actions also have significant impacts on various asset classes, often more so than the USD itself, and indeed may in turn influence the USD.
Trading the USD index
There are a few ways you can trade the USDX:
As part of the extensive product suite offered by GO Markets you have the opportunity to trade both the ETF referenced above, and the USD index (ticker code USDOLLAR).
Disclaimer: Articles are from GO Markets analysts and contributors and are based on their independent analysis or personal experiences. Views, opinions or trading styles expressed are their own, and should not be taken as either representative of or shared by GO Markets. Advice, if any, is of a ‘general’ nature and not based on your personal objectives, financial situation or needs. Consider how appropriate the advice, if any, is to your objectives, financial situation and needs, before acting on the advice.
The Purchasing Managers' Index (PMI) is an economic indicator used to measure the health and activity level of a specific sector of an economy, namely the manufacturing or services sectors. PMI data is published on a monthly basis and is of three types: Manufacturing PMI: This is the most well-known type of PMI. It measures the health of ...
The AUD/USD pair has had a tough month, falling relatively consistently since mid-July. This decline can be attributed to several factors, most notabl...