What Is the U.S. Dollar Index (DXY)? How It Works and How to Trade It

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The U.S. Dollar Index (DXY, also written USDX) measures the value of the U.S. dollar against a fixed basket of six foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. It is a geometrically weighted average of the dollar’s exchange rates against those currencies, scaled so that March 1973 equals 100. A reading above 100 means the dollar buys more of the basket than it did in March 1973. A reading below 100 means it buys less.

What Is the U.S. Dollar Index (DXY)?

The U.S. Federal Reserve created the dollar index in 1973 to give a single number for the dollar’s value after major currencies began floating against one another. It is now maintained by ICE Data Indices, a subsidiary of Intercontinental Exchange (ICE), which updated the index methodology in 2021.

“DXY” is the ticker most charting platforms use for the index, while USDX is the name ICE uses. Some data services list the spot index as DX-Y.NYB and label it “U.S. Dollar Index - Spot,” which separates the calculated index from the DX futures contract on ICE Futures U.S. that settles against it. The spot value is the index itself, computed from current exchange rates. The futures price is what traders agree to pay for the index at a later date, and it can differ from spot because of interest rate differences between the dollar and the basket currencies and time to expiry.

Which currencies are in the basket

The six currencies and their fixed weights are:

• Euro (EUR): 57.6%
• Japanese yen (JPY): 13.6%
• British pound (GBP): 11.9%
• Canadian dollar (CAD): 9.1%
• Swedish krona (SEK): 4.2%
• Swiss franc (CHF): 3.6%

The weights are fixed in the formula and do not drift with market prices or trade volumes.

How the U.S. Dollar Index Works

Calculating the U.S. Dollar Index

The DXY formula is a weighted geometric mean of six exchange rates multiplied by a constant:

USDX = 50.14348112 × EURUSD^(-0.576) × USDJPY^(0.136) × GBPUSD^(-0.119) × USDCAD^(0.091) × USDSEK^(0.042) × USDCHF^(0.036)

Three details make the formula readable:

1. The exponents are the weights. 0.576 is the euro’s 57.6% share, 0.136 is the yen’s 13.6%, and so on.
2. The sign depends on how the pair is quoted. EUR/USD and GBP/USD are quoted with the dollar as the quote currency, so a higher rate means a weaker dollar. Their exponents are negative so that a weaker euro or pound pushes the index up. USD/JPY, USD/CAD, USD/SEK and USD/CHF have the dollar as the base currency, so their exponents are positive.
3. The constant of about 50.1435 is a scaling factor. It sets the index to 100 at the March 1973 base exchange rates. It has no economic meaning of its own.

A geometric mean is used instead of a simple average because it treats percentage moves consistently. A 1% move in a given currency changes the index by the same proportion whether that exchange rate is quoted near 1 or near 150. Without it, the yen, quoted in the hundreds, would swamp the euro, quoted near 1.

Interpreting the U.S. Dollar Index

The level tells you how the dollar compares with its 1973 basket value. A reading of 120 means the dollar is 20% stronger against the basket than at the base. A reading of 80 means it is 20% weaker.

Day-to-day analysis uses the change between two readings, measured in percent rather than points. A move from 90 to 99 is a 9-point rise but a 10% gain, because the starting level is 90, not 100. Comparing the same date across years, a year-over-year change, is a common way to strip out short-term noise.

A rising index means the dollar is strengthening against the basket as a whole, not necessarily against every currency in it. If the euro falls sharply while the yen rallies modestly, the index can still rise.

Example of the U.S. Dollar Index

These figures are hypothetical, not current market rates.

Assume these exchange rates:

• EUR/USD 1.10
• USD/JPY 150
• GBP/USD 1.30
• USD/CAD 1.35
• USD/SEK 10.50
• USD/CHF 0.88

Plugging them into the formula (raising each rate to its exponent, multiplying the six results and multiplying by 50.14348112) gives an index of roughly 102.7. At that level, the dollar would be about 2.7% stronger against the basket than at the March 1973 base.

Now assume only EUR/USD changes, falling 1% to 1.089. The euro term becomes 0.99^(-0.576), which is about 1.0058, so the index rises about 0.58% to roughly 103.3. A 1% rise in USD/JPY with everything else unchanged would lift the index only about 0.14%. With these weights, a 1% move in the euro shifts the index more than four times as much as the same move in the yen and about 16 times as much as the same move in the Swiss franc.

This weighting means EUR/USD tends to move opposite to the dollar index: when the euro falls against the dollar, DXY rises.

History of the Dollar Index

The index came out of the collapse of the Bretton Woods system, under which foreign governments and central banks could convert dollars into gold at $35 an ounce. President Richard Nixon suspended that convertibility in 1971, and by March 1973 most major currencies were floating against one another. That month became the base period for the new index.

The original basket included individual European currencies such as the German deutschmark. When the euro launched in 1999, it replaced those currencies in the index. That is the only change to the basket’s composition. ICE can adjust the methodology, including the basket, but it has no scheduled reviews and does not commit to tracking the largest U.S. trading partners.

The index has ranged widely. It reached an all-time closing high of 164.72 in February 1985 and an all-time closing low of 71.33 in March 2008. In more recent years it has spent much of its time between about 90 and 110, with excursions outside that band, including a close of 114.24 on September 27, 2022.

Why the U.S. Dollar Index Matters

The index serves several uses:

• Trade and prices. A stronger dollar makes imports cheaper for U.S. buyers and U.S. exports more expensive abroad. A weaker dollar does the reverse. Moves in the index feed into discussions of import prices and inflation.
• Macro analysis. The index responds to inflation, growth and interest rate expectations in the United States and the basket economies.
• Corporate earnings. U.S. companies with large foreign sales report results in dollars, so a stronger dollar reduces the dollar value of their overseas revenue. Investors following broad equity benchmarks such as the S&P 500 often watch the index for that reason.
• Commodities. Many commodities are priced in dollars internationally, so dollar strength changes what they cost in other currencies.

How to Trade the U.S. Dollar Index

You cannot buy the spot index directly, but several instruments track it or follow the dollar more broadly:

• Futures and options. U.S. Dollar Index futures and options trade on ICE Futures U.S. They let traders take a view on the dollar against the whole basket in one position or hedge broad currency exposure.
• Exchange-traded products. The Invesco DB U.S. Dollar Index Bullish Fund (UUP) holds USDX futures to track the dollar’s rise. It is structured as a commodity pool, not a registered investment company, which affects how it is regulated and taxed. The Invesco DB U.S. Dollar Index Bearish Fund (UDN) is built to gain when the dollar weakens. The WisdomTree Bloomberg U.S. Dollar Bullish Fund (USDU) is an actively managed ETF that goes long the dollar against a basket of developed and emerging-market currencies, so it does not follow DXY’s six-currency mix.
• Mutual funds that target currency exposure.
• CFDs and spread bets offered by some brokers, where available and permitted. Their pricing usually references the futures contract.

Forex traders who never trade the index often use it as a filter. If DXY is rising, a long-dollar trade in a pair such as EUR/USD or GBP/USD lines up with the broad move, while a trade against the dollar works against it. Because the euro dominates, EUR/USD and DXY largely convey the same information, so trading both at once roughly doubles the same exposure.

Limitations of the U.S. Dollar Index

• The basket is dated. It reflects the trading relationships of the 1970s, adjusted only for the euro. China and Mexico are major U.S. trading partners, yet the yuan and peso are absent, while the Swedish krona, with a 4.2% weight, is included.
• It is mostly a euro index. With 57.6% in one currency, European developments can drive DXY even when the dollar is moving differently against Asian or North American currencies.
• The 1973 base is arbitrary. A level of 100 means only that the basket is back to its March 1973 value. It does not indicate a balanced market, fair value or equilibrium.
• No purchasing power adjustment. The index uses nominal exchange rates and does not account for inflation differences between countries, so a given level today does not represent the same real value as in the 1980s.

Dollar Index vs. Similar Measures

The Federal Reserve’s trade-weighted dollar indexes are separate measures. They weight a much broader group of currencies, including the yuan and peso, by their importance in U.S. trade, and those weights are updated periodically. They are a better match for questions about U.S. trade competitiveness. DXY is the more widely traded benchmark and the one tied to listed futures.

Purchasing power describes what a dollar buys at home and declines with domestic inflation. The dollar index measures the dollar’s exchange value against other currencies. Both can fall at once, but they measure different things.

A single currency pair such as EUR/USD shows the dollar against one currency; DXY shows it against six. Because of the euro weighting the two often look similar, but they diverge when the other five currencies, 42.4% of the weight, move differently from the euro.

The Bottom Line

Forex traders, investors in U.S. companies with large foreign sales and commodity watchers can use DXY as a quick read on broad dollar strength. Because the euro dominates the basket and the weights date from the 1970s, the index says little about the dollar against Asian or emerging-market currencies. For questions about U.S. trade competitiveness, the Federal Reserve's trade-weighted indexes are a better fit.