Dollar Index (DXY): definition
Also called: DXY · USDX
An index that measures the dollar against six currencies, dominated by the euro (57.6%). Convenient but unbalanced: it mostly reflects EUR/USD. The Fed's trade-weighted indices give a broader picture.
A basket of six currencies
The DXY measures the dollar's value against a fixed basket of six currencies: the euro (57.6%), the yen (13.6%), the pound (11.9%), the Canadian dollar (9.1%), the Swedish krona (4.2%) and the Swiss franc (3.6%). It was created with a base of 100 in March 1973, at the start of floating exchange rates.
A rise in the DXY means the dollar is appreciating against this basket; a fall, that it is depreciating.
What it really measures
With nearly 58% euro, the DXY is first and foremost the inverse of EUR/USD. It contains neither the yuan nor the Mexican peso, two major US trading partners, and its weights haven't changed since the euro arrived in 1999.
For a more accurate measure, the Fed publishes a trade-weighted dollar index (the “broad dollar index”), which covers more than twenty currencies.
How a trader uses it
The DXY serves as a barometer: it tells you whether a move is specific to one pair or comes from a general dollar move. If EUR/USD falls while the DXY is stable, it is the euro weakening, not the dollar rising.
Frequently asked questions
- Are the DXY and EUR/USD correlated?
- Yes, very strongly and inversely, since the euro makes up 57.6% of the basket.
- Can you trade the DXY?
- Yes, through futures listed on ICE, and with some brokers as CFDs.
This page explains a concept; it is not investment advice. Leveraged currency trading carries a high risk of losing capital.
