The US Dollar Index (DXY) explained: its six currencies and their weights

The US Dollar Index, often called DXY after a common data-vendor symbol, measures the value of the US dollar against a basket of six currencies. It's maintained by ICE Futures U.S. and was originally developed by the Federal Reserve in 1973, when major currencies began to float.

The basket

• 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%

Before the euro existed, the index had ten currencies. The euro replaced five of them: the Deutsche Mark, French franc, Italian lira, Dutch guilder and Belgian franc. ICE says that was the only adjustment to the index, which has no scheduled rebalancing.

How it's calculated

The index is a geometric average of the six exchange rates:

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

Where the dollar is the quote currency, as in EUR/USD and GBP/USD, the exponent is negative, so a rise in those pairs lowers the index. The index is measured against March 1973, when it was set at 100, so a reading of 97 means the dollar is about 3% weaker against the basket than it was then.

ICE calculates the index about every 15 seconds from spot prices. Futures on the index were listed in November 1985.

What the index does and doesn't tell you

• It's mostly a euro index. With the euro at 57.6%, DXY often moves as a mirror image of EUR/USD.
• It leaves out major trading partners. China and Mexico, two of the largest US trading partners, aren't in the basket, nor are most emerging market currencies. The Federal Reserve publishes broader trade-weighted dollar indexes for that reason.
• It's a useful filter. Traders check DXY to see whether a move in a pair is about the dollar broadly or about the other currency. If EUR/USD, GBP/USD and USD/JPY all show dollar strength at once, the move is probably dollar-driven (currency correlation).

Trading the dollar index

Retail traders usually reach the index through CFDs or exchange-traded futures. ICE's futures contract is worth $1,000 times the index value and settles by physical delivery of the six currencies. Many traders never trade it at all and use it only as a reference chart. The index's 1973 starting point is explained in from Bretton Woods to floating exchange rates.

Why a rising or falling dollar matters beyond forex

A move in the index isn't only a forex story:

• A rising dollar makes US imports cheaper and commodities priced in dollars, such as oil and gold, more expensive for buyers holding other currencies, which tends to weigh on those commodity prices. It also raises the real cost of dollar-denominated debt for foreign governments and companies that borrowed in dollars but earn in their own currency, and it can dent the reported foreign revenue of US multinationals once it's converted back to dollars.
• A falling dollar does the reverse: it supports commodity prices, eases the debt burden for dollar borrowers abroad and tends to flatter US exporters and multinationals' overseas earnings when translated back into dollars, while making imports more expensive for US buyers.

Because the effect runs in different directions for different groups, "a strong dollar" is neither straightforwardly good nor bad; it reallocates who benefits. What moves the gold price covers the dollar's role in gold specifically.