U.S. Dollar Index (USDX)

What the USDX measures

The U.S. Dollar Index (USDX) quantifies the value of the U.S. dollar relative to a basket of major foreign currencies. It was created in 1973 (after the end of the Bretton Woods system) and is currently maintained by ICE Data Indices. The index uses a base value of 100; values above or below that base indicate appreciation or depreciation of the dollar versus the basket.

Composition and weights

The USDX is a weighted geometric average of six currencies:
* 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%

Because the euro carries the largest weight, movements in the euro tend to dominate large swings in the index.

Brief history

• Established in 1973 with a base of 100.
• The basket changed only once: in 1999 the euro replaced several European currencies (deutschmark, franc, lira, guilder, Belgian franc).
• Historic extremes include a peak near 165 in the mid-1980s and a low near 70 in 2007. Since the 2000s the index has often traded in a narrower band.

How the USDX is calculated (overview)

The USDX is computed as a weighted geometric average of USD exchange rates versus the six basket currencies, then normalized by an indexing factor (~50.1435). The formula applies each currency’s weight as an exponent to the appropriate exchange-rate pair; the sign of the exponent depends on whether USD is the base or quote currency in that pair.

Example (conceptual form):
USDX ≈ constant × EURUSD^(-0.576) × USDJPY^(+0.136) × GBPUSD^(-0.119) × USDCAD^(+0.091) × USDSEK^(+0.042) × USDCHF^(+0.036)

Negative exponents reflect rates quoted as currency per USD vs. USD per currency.

Interpreting index moves

• An index value of 120 implies the dollar is roughly 20% stronger than at the base period.
• An index value of 80 implies roughly 20% weaker than the base.
  Interpretation depends on the chosen comparison period; percent changes are calculated relative to the base or another reference point.

What affects the USDX

Major drivers include:
* U.S. and foreign inflation differentials
* Interest rate differentials and central bank policy
* Relative economic growth or recessions
* Capital flows, risk sentiment, and geopolitical events
Because the euro dominates the weighting, developments in the eurozone often have outsized effects.

Uses and how to trade it

The USDX is used by market participants to gauge dollar strength and to hedge or express views on broad dollar moves.

Common ways to access the USDX:
* Futures and options on the ICE Futures exchange (direct exposure to the index).
* ETFs and mutual funds that track USD performance or USDX futures, for example:
* Long U.S. dollar ETFs that use futures to gain exposure.
* Actively managed funds that target broader developed/emerging currency baskets.
* Currency overlays and FX hedges implemented by institutional investors.

Limitations

• Fixed weighting origin: The basket and weights are based on 1973 trade patterns and have only been adjusted once (1999). That makes the index less representative of current U.S. trade partners.
• Euro dominance: A single-currency concentration can mask divergent moves among other trading partners.
• Not a comprehensive measure of global trade exposure: important currencies for U.S. trade (e.g., Chinese yuan, Mexican peso) are not included.

Key takeaways

• The USDX is a long-standing, widely used gauge of the U.S. dollar’s strength versus six major currencies.
• It’s useful for macro analysis, hedging, and speculative trading, but its fixed, euro-heavy weighting limits how well it reflects present-day global trade patterns.