An overvaluation of the USD led to concerns over the exchange rates and their link to the way in which gold was priced. President Richard Nixon decided to temporarily suspend the gold standard, at which point other countries were able to choose any exchange agreement other than the price of gold. In 1973, many foreign governments chose to let their currency rates float, putting an end to the agreement. The index itself is calculated as the weighted sum of the exchange-rate logarithms, then is charted to show the equivalent percentage changes in the index relative to the last trading day. If the index has a positive move, that means that the currency being measured has strengthened against its partner currencies, which is usually good for import activity. A negative move indicates that the currency has weakened against its partner currencies, which is usually good for exports.

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1. He is also a staff writer at Benzinga, where he has reported on breaking financial market news and analyst commentary related to popular stocks since 2014.
2. Since 1985, the dollar index has been calculated and maintained by Intercontinental Exchange (ICE).
3. The below chart shows some of the major events that affected the USDX price since 2005.
4. The index is affected by macroeconomic factors, including inflation/deflation in the dollar and foreign currencies included in the comparable basket, as well as recessions and economic growth in those countries.
5. A few top choices are the WisdomTree Bloomberg US Dollar Bullish ETF (USDU) and the Invesco DB US Dollar Index Bullish Fund (UUP).

The USDX allows traders and investors to monitor the purchasing power of the U.S. dollar relative to the six currencies included in the index’s basket. The U.S. dollar index allows traders to monitor the value of the USD compared tradeview forex to a basket of select currencies in a single transaction. It also allows them to hedge their bets against any risks with respect to the dollar. It is possible to incorporate futures or options strategies on the USDX.

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We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. The USD Index is affected by the supply of and demand for the US Dollar and currencies that make up the basket – as these factors influence the price of each currency pair in the formula used to calculate the US Dollar Index’s value. Since then, the US Dollar Index has tracked economic performance and liquidity flows.

The Dollar Index Is Down 4%: What Next For The Forex Market?

Some U.S. companies are blaming the strong U.S. dollar for lackluster earnings, while economists say it’s helping the Federal Reserve’s ongoing fight against high inflation. These financial products currently trade on the New York Board of Trade. Investors can use the index to hedge general currency moves or speculate. The index is also available indirectly as part of exchange-traded funds (ETFs) or mutual funds. An index value of 120 suggests that the U.S. dollar has appreciated 20% versus the basket of currencies over the time period in question. Simply put, if the USDX goes up, that means the U.S. dollar is gaining strength or value when compared to the other currencies.

What Currencies Are in the USDX Basket?

Federal Reserve in 1973 after the dissolution of the Bretton Woods Agreement. It is now maintained by ICE Data Indices, a subsidiary of the Intercontinental Exchange (ICE). Our goal is to give you the best advice to help you make smart personal finance decisions.

There are several popular exchange-traded funds (ETFs) that track the USDX. UUP has more than $2 billion in assets under management and is extremely liquid, averaging more than 4.1 million shares of daily trading volume. At the same time, Russia’s invasion of Ukraine has created economic uncertainty around the world, particularly in the European energy market. Because the U.S. dollar is the world’s reserve currency and is generally considered a safe haven during periods of economic instability, investors have also been piling into the dollar for safety and security. Investors also use the dollar index as a litmus test for U.S. economic performance, particularly when it comes to imports and exports. The more goods the U.S. exports, the more international demand there is for U.S. dollars to purchase those goods.

Just as a stock index measures the value of a basket of securities relative to one another, the U.S. Dollar Index expresses the value of the dollar in relation to a “basket” of currencies. The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives.

Bankrate follows a strict
editorial policy, so you can trust that our content is honest and accurate. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. For example, if the U.S. dollar appreciates against the Mexican peso, it’s probably due to Mexico’s policies, not U.S. policies. If the Trade-Weighted U.S. Dollar Index increases, then the dollar is strengthening against the currencies of a basket of its main trading partners, and that’s probably due to changes in U.S. policies. The dollar’s strength against the peso is good for companies that import from Mexico.

The index started in 1973 with a base of 100, and values since then are relative to this base. It was established shortly after the Bretton Woods Agreement was dissolved. As part of the agreement, participating countries settled their balances in U.S. dollars (which was used as the reserve currency), while the USD was fully convertible to gold at a rate of $35/ounce. The U.S. dollar index (USDX) is a measure of the value of the U.S. dollar relative to a basket of foreign currencies.

It also doesn’t include China’s renminbi (CNY), even though China is now the largest U.S. trading partner by a wide margin. The euro is, by far, the largest component of the index, making up 57.6% of the basket. The weights of the rest of the currencies in the index are JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%).

It is not a solicitation or a recommendation to trade derivatives contracts or securities and should not be construed or interpreted as financial advice. Any examples given are provided for illustrative purposes only and no representation is being made that any person will, or is likely to, achieve profits or losses similar to those examples. DailyFX Limited is not responsible for any trading decisions taken by persons not intended to view this material. The Trade-Weighted U.S. Dollar Index is useful for thinking through the effects of exchange rates on the economy. We talk about currency exchange rates being “weak” or “strong,” but those are relative terms. They don’t equate with “bad” or “good.” Someone with foreign currency can buy more if the dollar is weak, which is good for companies that export.

For example, it rose as the current account generated a surplus in the 1990s, fell as US debt levels increased in the 2000s, and rallied as investors flocked to the relative safety of the Dollar during the Great Recession. In the U.S., the Federal Reserve Bank weights world currencies based on their importance to U.S. import and export activity. The Trade-Weighted U.S. Dollar Index, also known as the Nominal Broad-Dollar Index, has been calculated by the Federal Reserve Bank since 1998. It measures changes in the value of the dollar against the currencies most used for U.S. imports and exports, rather than comparing it against any one of the world’s currencies or all of them. Tech stocks have the largest overall exposure to international markets of any S&P 500 market sector, with overseas revenue representing 59% of total sales, according to Goldman. Semiconductor company Qualcomm (QCOM) generates nearly all—96%—of its revenue internationally, while Facebook parent Meta Platforms (META) and Google parent Alphabet (GOOGL) generate more than half of their revenue overseas.