Dollar index how is it calculated

Commodity prices tend to fall at least nominally as the Dollar increases in value — and vice versa. In the s, the index fluctuated between 80 and as the US economy struggled through recession and rapidly rising inflation. It reached However, such a strong Dollar caused problems for US exporters, who found that their goods were no longer as competitive internationally.

Since then, the US Dollar Index has tracked economic performance and liquidity flows. For example, it rose as the current account generated a surplus in the s, fell as US debt levels increased in the s, and rallied as investors flocked to the relative safety of the Dollar during the Great Recession. The below chart shows some of the major events that affected the USDX price since Supply and demand for currencies is heavily influenced by the monetary policies — particularly the interest rates — set by the central bank in each country.

Other factors include inflation, economic performance, credit ratings, market sentiment and foreign affairs. Read more on how to trade US Dollar Index for technical strategies and tips.

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Live Webinar Live Webinar Events 0. Economic Calendar Economic Calendar Events 0. Duration: min. P: R:. Search Clear Search results. Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics.

It only takes a minute to sign up. Connect and share knowledge within a single location that is structured and easy to search. So by calculating the weighted geometric mean in Excel I found that its actually the same as the above formula but without the So my question is where does it come from?

The countries that use these currencies constitute the bulk of international trade with the United States, and also have well-developed foreign exchange markets, with rates freely determined by market participants. The exponents that you write as superscripts come the constant weights of each component currency in the index:.

The Federal Reserve created this index in March, , when the Bretton Woods Agreement fell apart and the main currencies began to be freely quoted relative to each other. They weights were set based on bilateral trade. There is are also trade-weighted version of this index, where the weights are updated periodically. The first factor, Conversely the quotes for the other currencies are the amount of foreign currency needed to buy 1 USD.

The calculation formula has changed once in connection with the creation of the Euro. For this reason the time series usually begin in However, if a trader plans to use the US Dollar Index to bet on the direction of the Dollar, they must always be mindful of the basket and the weightings.

If the US Dollar is expected to decline against the commodity currencies such as the Australian and Canadian Dollar - for example, due to negative news or slower economic growth in those markets - but not much against the Euro, the US Dollar Index would not be an appropriate product, as the CAD weighting is low, and the Euro weighting high.

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Learn how copy trading works and begin exploring this method of trading. See More News. Open Account Try a Free Demo. What is the US Dollar Index and how is it calculated? What is the US Dollar Index? What is the US Dollar Index symbol? How to trade the US Dollar Index? Why was the US Dollar Index created? How is the US Dollar Index calculated? What affects the price of the USD Index? Some factors that could move the index are: Interest rates - Rising interest rates in the United States would make the US Dollar more attractive to investors, which would lead to an increase in the value of the index.

On the other hand, should the market start to price in lower interest rates, the DXY would come under pressure. Risk sentiment - The US Dollar is traditionally seen as a safe haven.