What is the U.S. Dollar Index? Traders who are familiar with stocks have likely heard of the Dow Jones Industrial Average, the NASDAQ, the S&P 500, and other indices that are used to measure the rise or decline of stocks. For Forex traders, there is another one to pay attention to as well, and it is known as the U.S. Dollar Index (USDX).
The USDX consists of a basket of geometrically weighted averaged values of foreign currencies against the U.S. Dollar. If that sounds complex to you, it is understandable. However, we can go into greater detail on what this all means in just a moment.
The purpose of the USDX is to do something very similar to what the stock indexes do for stocks. This is to say that it is used as a way to give traders a general idea of what the U.S. Dollar is doing against other currencies on any given day.
What is the U.S. Dollar Index Basket Made up of?
The USDX basket consists of six foreign currencies weighed against the US Dollar. Those currencies include:
- Japanese Yen
- British Pound
- Canadian Dollar
- Swedish Krona
- Swiss Franc
These six currencies represent a total of 24 countries given the widespread use of the Euro throughout much of Europe. Now, 24 countries are not that big of a slice of the whole planet, but the currencies of many other countries closely follow the value of the dollar. Thus, it is important to consider these six currencies as they are more independent from the dollar than many others.
Traders have the option to trade the USDX as a futures contract, or they may even begin to trade it as an exchange-traded fund (ETF) if they choose to do so.
ICE U.S. Dollar Index
“U.S. Dollar Index”, “Dollar Index”, and “USDX” are all official trademarks of ICE Futures U.S. Inc. The U.S. Dollar Index is the exclusive property of the Intercontinental Exchange Group.
If traders ask, “What is the U.S. Dollar Index?” the answer usually points to the Intercontinental Exchange Group (ICE) — a very powerful global exchange that engages in the clearing of trades. They are also a financial data and technology company on top of that. They operate in several markets throughout the world, and the work that they do spans nine different asset classes.
The company is one of the largest exchanges in the entire world. If you ever see a trademark logo next to U.S. Dollar Index, it is because the term is a trademark of ICE.
Since 1985, ICE compiles the data necessary to keep the U.S. Dollar Index functional. Futures trading on the Dollar Index has been happening since 1985, and ICE has been there every step of the way.
For 21 out of 24 hours of the day, it is possible to trade the USDX on the ICE Exchange platform. It is an extremely liquid and popular market and is estimated to have a turnover of approximately $2 trillion per trading day.
The ICE U.S. Dollar Index is virtually the only Dollar-based exchange where traders can trade the U.S. Dollar almost around the clock. It is available for nearly every hour of the day, and it is one of the best ways for traders to get down their futures contracts on the U.S. Dollar if they choose to do so.
At this time, the USDX is considered the worldwide benchmark for the value of the US Dollar everywhere around the world.
USDX vs. DX vs. DXY
There are multiple abbreviations that you may stumble upon if you simply searched for the U.S. Dollar index on Google. You might see USDX, DX, and DXY. So, what is the difference between them?
What is USDX?
This is the umbrella term that covers everything you could be talking about with the U.S. Dollar Index.
What is DX?
This is the symbol used by ICE to represent the futures contracts on the U.S. Dollar. You will see DX followed by the month and the year of expiration on a specific futures contract that you are looking at on the U.S. Dollar.
What is DXY?
This is the symbol used by the Bloomberg Terminal as a shorthand for the Dollar Index. It is the symbols that some traders refer to when they are talking about where the US Dollar is trading right now.
Components of the USDX
We have already discussed the currencies that go into the USDX, but they still need to be weighted. What is the U.S. dollar index from a weighting standpoint, then? Not every currency is as large or widespread as every other. Thus, it is necessary to give proper weight to each currency that goes into the collection. Here is the currency composition of the USDX:
As you can see, the Euro makes up 57.6% of the index because it is so widespread in its use across 19 different countries. The Yen comes in second at 13.6% because it is only used in Japan, but Japan has a significantly large economy. Third is the British Pound at 11.9%. Then, the list continues from there.
Since the Euro is a significant portion of the total, it often has an outsized influence on the movement of the USDX as a whole.
Is the USDX Adjusted or Rebalanced?
There has only been one adjustment to the USDX since its inception. That was when the Euro was introduced as the common currency across European bloc countries. However, there are not any regularly scheduled adjustments.
ICE is the party responsible for adjusting the USDX when necessary, but they have rarely found that to be necessary to this point.
How is the Value Calculated?
The value of the USDX is calculated every 15 seconds and distributed across all financial informational services. The price is set by contracts traded in the market.
Where are Real-Time Values of the USDX Available?
WebICE (a subscription service) and a few other market data vendors are the only place where one can get real-time data on the USDX. Most of those vendors charge a subscription fee of some kind. Delayed pricing of the USDX is available via financial data providers such as CNBC, Bloomberg, MarketWatch, and the Wall Street Journal and likely in your favorite trading platform, like TradingView.
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