When you trade stocks, you must be know all the indices available such as
the Dow Jones Industrial Average (DJIA), NASDAQ Composite Index, Russell
2000, S&P 500, Wilshire 5000, and the Nimbus 2001. Oh wait, that last one is actually Harry
Potter’s broomstick.
Good, when U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders, we have the U.S. Dollar Index (USDX).
The U.S. Dollar Index comprises of a geometric weighted average of a basket of foreign currencies against the dollar.
Say whutttt!?! Okay before you fall asleep after that super geeky definition, let’s break it down.
This is very common to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies.
If you answered “6”, you are not correct.
Actually, there are 23 countries total, because there are 18 members of the European Union that have adopted the euro as their sole currency, plus the other five countries (Japan, Great Britain, Canada, Sweden, and Switzerland) and their accompanying currencies.
Certainly, 23 countries make up a small portion of the world but many other currencies follow the U.S. Dollar index very closely. It makes the USDX a pretty good tool to measuring the U.S. dollar’s global strength enough.
Comprising with 17 countries, Euros make up a big chunk of the U.S. Dollar Index. The next highest is the Japanese yen, which would make sense since Japan has one of the biggest economies in the world. The other four make up less than 30 percent of the USDX.
There is something interesting: When the euro falls, which way does the U.S. Dollar Index move?
Surprisingly, the euro makes up such a huge portion of the U.S. Dollar Index, we might as well call this index the “Anti-Euro Index”. Because the USDX is so heavily influenced by the euro, people have looked for a more “balanced” dollar index. There are more on that later though. Thus, you need to go to the charts!
Good, when U.S. stocks have an index, the U.S. dollar can’t be outdone. For currency traders, we have the U.S. Dollar Index (USDX).
The U.S. Dollar Index comprises of a geometric weighted average of a basket of foreign currencies against the dollar.
Say whutttt!?! Okay before you fall asleep after that super geeky definition, let’s break it down.
This is very common to how the stock indices work in that it provides a general indication of the value of a basket of securities. Of course, the “securities” we’re talking about here are other major world currencies.
The US Dollar Index Currency Basket
The U.S. Dollar Index comprises of six foreign currencies. They are the:- Euro (EUR)
- Yen (JPY)
- Pound (GBP)
- Canadian dollar (CAD)
- Krona (SEK)
- Franc (CHF)
If you answered “6”, you are not correct.
Actually, there are 23 countries total, because there are 18 members of the European Union that have adopted the euro as their sole currency, plus the other five countries (Japan, Great Britain, Canada, Sweden, and Switzerland) and their accompanying currencies.
Certainly, 23 countries make up a small portion of the world but many other currencies follow the U.S. Dollar index very closely. It makes the USDX a pretty good tool to measuring the U.S. dollar’s global strength enough.
US Dollar Index Components
By now that you know what the basket of currencies is composed of, let’s get back to that “geometric weighted average” part. Because not every country is the same size, it’s only fair that each is given appropriate weights when calculating the U.S. dollar index. Check out the current weights:Comprising with 17 countries, Euros make up a big chunk of the U.S. Dollar Index. The next highest is the Japanese yen, which would make sense since Japan has one of the biggest economies in the world. The other four make up less than 30 percent of the USDX.
There is something interesting: When the euro falls, which way does the U.S. Dollar Index move?
Surprisingly, the euro makes up such a huge portion of the U.S. Dollar Index, we might as well call this index the “Anti-Euro Index”. Because the USDX is so heavily influenced by the euro, people have looked for a more “balanced” dollar index. There are more on that later though. Thus, you need to go to the charts!
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