Notices

US Dollar Index

From Traderpedia

Definition:
The US Dollar Index is computed using a trade-weighted geometric average of a basket of foreign currencies against the dollar.


The US Dollar Index (USDX) is much like other indices in that it provides a general indication of the value of a basket of securities. In this case it is the US Dollar against other major world currencies. The 17 countries included (12 countries of the Euro zone plus five others) constitute the bulk of international trade with the United States, and have well-developed foreign exchange markets with rates freely determined by market participants. Many of the currencies not included in the USDX move in close tandem with those that are included, making it a useful measure of the US Dollar's global strength.

[edit] Calculation

The USDX is computed 24 hours a day, seven days a week as a geometric weighted average of the change in six foreign currency exchange rates against the US Dollar relative to its base point. Thus, it measures the Dollar's general value relative to a base of 100.00. A reading of 110 means the Dollar has risen 10% in value since March 1973 (the start of the index).

The USDX comes about this measure in a fashion similar to the Federal Reserve's trade-weighted index, using the same curriencies and weights.

[edit] Currencies & Weights

EUR: 0.576

JPY: 0.136

GBP: 0.119

CAD: 0.091

SEK: 0.042

CHF: 0.036

[edit] History

March 1973 was chosen as a base period because it is when the world's major trading nations allowed their currencies to float freely. This was the result of an agreement reached at the Smithsonian Institution in Washington, DC. The Smithsonian agreement replaced a fixed rate regime implemented about 25 years early at Bretton Woods.

From the March 1973 base point, the USDX has traded as high as the mid-160's and as low as the high-70's.