Markets 101: What is the U.S. dollar index?

August 24, 12:03 AMNY Markets ExaminerJennifer Shotts

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The US Dollar Index (USDX) is a measurement of the value of the United States dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar's value compared to the euro (EUR), Japanese yen (JPY), British pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF).

The dollar index was started in March 1973, soon after the dismantling of the Bretton Woods system, when nations' currencies were allowed to float freely against one another. At that time, the value of the Dollar Index was 100.000 and has since traded as high as the mid-160s but also into the low 70s.  So, the way that the dollar index should be read is this:  if the value of the index is trading at 105, it is 5% higher than it was in 1973.  If it is trading at 75, it is trading 25% lower than it was in 1973.

The index is updated 24 hours a day, 7 days a week. It is listed on ICE Futures Exchange US (e.g., New York Board of Trade [NYBOT]).

Here is the current weighting of the index's components, since these six countries vary vastly in size.  You can see, for example, that the 16 nations that make up the euro currency help to give the euro the largest weighting against the dollar in the index, compared to the other five components, which make up the remaining 43%.  

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