Published on: 2023-11-17
Updated on: 2026-01-28
The dollar index represents a single figure that often sets the tone for global markets. The US Dollar Index, commonly referred to as DXY or USDX, consolidates the dollar’s performance against a basket of major currencies into one benchmark.
DXY can move quickly. For example, on 27 January 2026, DXY fell to 95.86 (a four-year low) as markets adjusted expectations for US interest rates.
This is not just theory. A stronger or weaker dollar can affect company margins, commodity prices, and financial conditions, especially in countries that borrow in US dollars.
DXY measures the US Dollar against six major currencies, with the euro carrying 57.6% of the weighting, making euro moves the dominant driver of day-to-day index action.
A DXY reading above 100 signals US Dollar appreciation versus March 1973, while a reading below 100 signals depreciation relative to that base level.
Interest-rate differentials and Treasury yields are the primary macro transmission channels because currency markets price the relative returns on cash and short-duration rates more quickly than most asset classes.
DXY is not a complete “US trade” index, because its basket has changed only once since inception and excludes key modern trade partners such as China and Mexico.
The US Dollar Index (DXY), also called USDX, tracks the value of the US dollar (USD) against a basket of six major currencies. It condenses multiple foreign exchange (FX) rates into a single benchmark used in FX trading and macro analysis.
In practice, DXY is often used as shorthand for “the dollar” in global markets. The basket is limited and tilted toward developed-market currencies, but it still captures USD moves versus major reserve currencies, which can influence global financial conditions.
Movements in DXY often signal broader shifts in rate expectations, growth differentials, or risk sentiment, rather than isolated currency fluctuations.
DXY is dominated by European exposure, because the euro alone accounts for more than half of the basket. That weighting structure matters: if EUR/USD moves sharply, DXY can move even when other USD pairs are relatively stable.
| Currency | Code | Weight |
|---|---|---|
| Euro | EUR | 57.60% |
| Japanese Yen | JPY | 13.60% |
| British Pound | GBP | 11.90% |
| Canadian Dollar | CAD | 9.10% |
| Swedish Krona | SEK | 4.20% |
| Swiss Franc | CHF | 3.60% |
These weights also explain a common misconception: “DXY up” does not automatically mean “every currency down.” It primarily means the dollar is stronger relative to this specific basket.
DXY is calculated as a geometric weighted average of exchange rates, not an arithmetic average. The index was normalised to 100 in March 1973, so every subsequent value is interpreted relative to that starting point.
A simplified way to read the level:
120 implies the US Dollar is about 20% stronger versus the basket than it was at the base level.
80 implies the US Dollar is about 20% weaker against the basket than at the base level.
The negative exponents are not a trick. They simply reflect the FX quoting convention: if USD is the quote currency in a pair (for example, EUR/USD), a stronger dollar tends to push that exchange rate lower.
| Milestone | DXY Level | Why it mattered |
|---|---|---|
| Base reference (Mar 1973) | 100.00 | Index normalization after the move to floating FX |
| Record high (Feb 1985) | 164.72 | Peak USD strength era, later followed by policy-driven adjustment |
| 20-year closing high (Sep 2022) | 114.24 | Inflation shock, aggressive Fed tightening, global energy stress |
| Four-year low area (Jan 2026) | ~95.86 | Dollar softness amid shifting policy expectations and risk repricing |
DXY represents the outcome of various macroeconomic factors, with particular emphasis on the price of money.
DXY is driven by relative expectations between the US and the other economies in the basket. Because the euro is the largest weight, European Central Bank (ECB) policy and euro-area data can matter almost as much as the US Federal Reserve (Fed). The Japanese yen (JPY) component often reflects interest-rate differences and “carry” positioning.
FX markets respond quickly to data surprises because they shift the path of central bank policy. A US growth outperformance story usually supports DXY, especially when Europe or Japan prints weaker activity. Conversely, a US slowdown that pulls policy expectations lower can weigh on the index.
DXY often strengthens in risk-off episodes, but the nuance matters. Sometimes the dollar rallies because investors want liquidity and US Treasury collateral. Other times, safe-haven demand concentrates in the yen or Swiss franc, and DXY can fall because those currencies are in the basket.
Because the euro accounts for 57.6% of the DXY, the index often mirrors the EUR/USD rate. That creates periods when DXY is effectively a referendum on Europe’s inflation path, energy balance, and ECB reaction function, rather than on the US alone.
A rising DXY signals broad USD appreciation versus the basket. That typically shows up through five transmission channels:
For individuals with expenses denominated in US Dollars, a stronger dollar typically increases the local-currency cost of tuition, rent, and debt service. However, if the home currency is not included in the DXY basket, the personal exchange rate may diverge from the index’s signal.
A stronger dollar lowers the USD price of imported goods and can dampen imported inflation, particularly in sectors tied to globally traded inputs.
US exporters may see pricing pressure abroad. Multinationals can also face translation headwinds when foreign revenues are converted back into US Dollars, a recurring theme in earnings seasons.
Many commodities are priced in US Dollars. When DXY rises, the purchasing power of non-USD buyers typically declines, which can reduce demand. While this relationship is not absolute, it is sufficiently consistent to be relevant in risk models.
A firmer dollar can raise the real burden of USD funding for borrowers with dollar-linked liabilities and can increase hedging costs.
A falling DXY indicates USD depreciation versus the basket and usually implies the opposite set of forces, with different risks:
Improved external competitiveness for US exports and foreign earnings translation.
Higher imported inflation risk if the currency move is large and persistent, especially where consumption relies on imported energy, food, or manufactured inputs.
Easier global liquidity conditions if the decline reflects easing US policy expectations rather than pure risk stress.
In late January 2026, DXY’s move into the mid-90s highlighted how quickly the market can pivot from a tight-policy regime to a softer-dollar regime when rate expectations and confidence in policy stability shift.
Gold and DXY often move inversely because gold is priced in US Dollars and competes with real yields as a store of value. However, during acute stress, both can rise if gold attracts a pure safety bid while the dollar attracts liquidity demand.
Oil and industrial commodities can weaken when DXY rises, but supply shocks or geopolitical risk premia can overwhelm currency effects.
US equities face a mixed impact. A stronger dollar can pressure multinationals and commodity-linked sectors, while a weaker dollar can act as a tailwind for risk assets if it reflects easier financial conditions rather than inflation stress.
DXY is popular because it is liquid, widely quoted, and tradable through futures and derivatives on ICE. But it is not the only lens.
Trade-weighted dollar indexes published by the Federal Reserve attempt to reflect broader trade relationships and can provide a more representative view of the dollar’s impact on the real economy than DXY alone.
DXY’s limitation is structural: the basket changed only once, in 1999, when the euro replaced legacy European currencies. That stability supports comparability, but it reduces representativeness in a world where trade patterns shifted toward Mexico and Asia.
For households and businesses, an exposure-based benchmark is more appropriate. If cash flows are linked to USD/CNY, USD/MXN, or USD/SGD, DXY may serve as a general indicator of dollar sentiment, but it should not be the primary reference for hedging.
Professionals use DXY in three main ways:
DXY helps frame whether a portfolio is implicitly long or short USD risk. It also contextualises moves in gold, oil, and emerging-market FX.
Corporates hedge revenues, costs, and debt service using forwards and options. Investors hedge overseas equity and bond exposure when currency volatility threatens returns.
DXY exposure can be accessed through futures and options on ICE, as well as via ETFs that use futures-based structures for long or short USD positioning.
The dollar index reflects the U.S. dollar’s strength or weakness relative to a fixed basket of six major currencies. An increase in DXY indicates dollar appreciation against this basket, while a decrease signals depreciation, with subsequent effects on inflation, commodities, and global liquidity.
DXY changes as FX markets respond to interest rates, inflation expectations, economic data, and risk sentiment. For context, in late January 2026, DXY traded in the mid-90s as markets adjusted expectations for US interest rates.
Because the euro’s weight is 57.6%. That makes DXY highly sensitive to EUR/USD, so a large euro move can dominate the index even if USD is mixed elsewhere.
Not necessarily. DXY compares the USD only to six currencies. If your home currency is not in the basket, it can strengthen or weaken against USD even when DXY moves in the opposite direction. Use DXY as context, then focus on your specific USD pair.
No. DXY is a six-currency benchmark designed for market comparability and tradability. The Fed’s trade-weighted measures cover a broader set of currencies and are often more representative of how the dollar affects trade and the real economy.
While the definition of the dollar index is straightforward, its implications are complex. DXY is a tradable, euro-weighted measure of US Dollar strength against six major currencies, anchored to a 1973 base. Movements in DXY influence interest rates, inflation, commodities, and global risk appetite, affecting overseas purchasing power, corporate earnings, and emerging-market funding conditions.
Whether you trade FX, invest globally, or track inflation risks, understanding DXY helps you interpret what the USD is doing versus major currencies, and why.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person.
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