Macro & Central BanksDXYDollar Index
US Dollar Index (DXY)
A trade-weighted index measuring the US dollar against a basket of six major currencies, heavily weighted toward the euro.
What US Dollar Index (DXY) means
The US Dollar Index measures the value of the dollar against a fixed basket of six currencies using a geometric weighted average. The euro dominates at roughly 57.6 percent, followed by the Japanese yen, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc. The index was established in the early 1970s with a base value of 100 after the collapse of the Bretton Woods system, and apart from the introduction of the euro replacing several legacy European currencies, its composition has remained unchanged since.
Traders use it as a single gauge of broad dollar direction, as a filter for individual pair trades, and as a rough proxy for how dollar-denominated commodities may behave. Two caveats are important. Because of the euro weighting, the index is close to an inverted euro trade rather than a genuinely global dollar measure, and it contains no Chinese, Mexican or emerging Asian currency despite their trade importance. Broader trade-weighted dollar indices published by central banks address that but are far less widely quoted.
Worked example
If the index rises one percent, most of that move typically reflects EUR/USD falling from around 1.0850 to 1.0730, so a trader treating the index as an independent confirmation of a euro short is effectively looking at the same position twice. Illustrative hypothetical.
Related terms
- Safe-Haven CurrencyA currency that tends to appreciate during periods of market stress as investors seek to preserve capital.
- Federal ReserveThe central bank of the United States, responsible for US monetary policy and the world's primary reserve currency.
- Major PairsThe most heavily traded currency pairs, each pairing the US dollar with another large developed-market currency.
- CorrelationA statistical measure between -1 and +1 describing how closely the returns of two instruments move together.
Frequently asked questions
What does US Dollar Index (DXY) mean in forex trading?
A trade-weighted index measuring the US dollar against a basket of six major currencies, heavily weighted toward the euro.
How does US Dollar Index (DXY) work in practice?
Traders use it as a single gauge of broad dollar direction, as a filter for individual pair trades, and as a rough proxy for how dollar-denominated commodities may behave. Two caveats are important. Because of the euro weighting, the index is close to an inverted euro trade rather than a genuinely global dollar measure, and it contains no Chinese, Mexican or emerging Asian currency despite their trade importance. Broader trade-weighted dollar indices published by central banks address that but are far less widely quoted.
What is an example of US Dollar Index (DXY)?
If the index rises one percent, most of that move typically reflects EUR/USD falling from around 1.0850 to 1.0730, so a trader treating the index as an independent confirmation of a euro short is effectively looking at the same position twice. Illustrative hypothetical.
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