What is the US Dollar Index (USDX)?
The US Dollar Index (USDX) is a measure of the value of the US dollar. compared to the value of a basket of currencies The largest US trading partner This index, similar to other trading weighted indices, uses exchange rates. from the same base currency
important issues
- US dollar index It is used to measure the value of the dollar against a basket of six world currencies: the Euro, Swiss Franc, Japanese Yen, Canadian Dollar, British Pound and Swedish Krona.
- The index, established shortly after the Bretton Woods Agreement ended in 1973, has a base of 100 and values since then have been associated with it.
- The value of an index is a fair indication of the dollar’s value in the world market.
Understanding the US Dollar Index (USDX)
The current index is calculated by Factoring in forex of the six major world currencies which include the Euro (EUR), Japanese Yen (JPY), Canadian Dollar (CAD), British Pound (GBP), Swedish Krona (SEK) and Swiss Franc (CHF).
So far, EUR is the largest component of the index, accounting for 57.6% of the basket. The remaining weights in the index are the Japanese Yen (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%) and CHF (3.6%)
The index started in 1973 with a base of 100 and the values since then are related to this base. It was formed shortly after the Bretton Woods deal was dissolved. The participating countries have paid their balance in US dollars. (which is used as currency reserve currency), while the USD can be fully converted to gold at the rate of $35 per ounce.
An overestimation of the USD has raised concerns about the exchange rate and its connection to the way gold is priced. President Richard Nixon decided to temporarily suspend the gold standard whereby other countries could choose any exchange deal. Well, besides the price of gold, in 1973 many foreign governments chose to leave them. The floating currency rate is the termination of the deal.
US Dollar Index (USDX) History
The US dollar index has risen and fallen sharply throughout history. It hit a record high in 1984 of nearly 165, an all-time low of nearly 70 in 2007. In January 2022, the index was around 96 over the past six years. There are quite a range of frames between 90 and 100.
The index is affected by Macroeconomic factors, including inflation/deflation in the dollar and foreign currency, are included in the comparison basket. as well as recession and economic growth in those countries.
The content of the currency basket has changed only once since the index began, when the euro replaced many of the previous European currencies in the index in 1999, such as Germany’s previous currency. Deutschemark.
in the next few years The currency will be replaced as the index strives to represent the major US trading partners. It is likely in the future that currencies such as the Chinese Yuan (CNY) and the Mexican Peso (MXN) will replace other currencies in the index as China and Mexico are major trading partners with the US.
Interpreting and Trading the US Dollar Index (USDX)
The 120 index shows that the US dollar was up 20% against a basket of currencies during the period. In other words, if the USDX goes up, the US dollar is strengthening against other currencies.
in the same way If the current index is 80, drop 20 from the default. It shows 20% depreciation. The appreciation and depreciation effect is one of the factors of the time in question.
The US Dollar Index allows traders to monitor the value of the Dollar against a basket of selected currencies in a single transaction. It also allows them to hedge their dollar exposure, can include futures or options strategies in USDX.
These financial products are traded on New York Board of Trade. Investors can use indices to hedge against common currency movements or speculate. The index is also provided indirectly as part of Trade exchange-traded funds (ETFs), options or mutual funds.
