What is the US Dollar Index, DXY?

The US Dollar Index (DXY) is a measure of the value of the United States dollar relative to a basket of six major world currencies: the Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, and Swedish Krona. It provides a broad indicator of the dollar's international strength or weakness against these key trading partners.

The DXY basket consists of six currencies: the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swiss Franc (CHF), and Swedish Krona (SEK). The Euro has the largest weighting, reflecting its significance in global trade and finance, while the other five currencies have smaller, fixed shares.

The DXY typically rises when the US Federal Reserve implements monetary contraction, such as selling bonds or raising interest rates, which reduces the dollar's supply. Strong US economic growth and positive economic data can also increase demand for the dollar, boosting the index's value.

The DXY generally falls when the US Federal Reserve engages in monetary expansion, such as buying bonds and increasing the dollar's supply in the market. Negative economic news, expectations of lower interest rates, or unfavorable data like high unemployment or inflation can also decrease the dollar's relative value, pulling the index down.