The US Dollar Index (DXY) measures the value of the US dollar against a basket of six major currencies, led by the euro at 57.6%. It started at 100 in March 1973, so a reading above 100 means the dollar is stronger than it was then against that basket. Forex traders use the DXY as a broad gauge of dollar strength, though its heavy euro weighting means it is not a full picture of the dollar’s value.
Key takeaways
- The DXY compares the dollar with the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
- The euro makes up 57.6% of the index, so the DXY often moves as a near mirror image of EUR/USD.
- US interest-rate expectations, economic data and global risk sentiment are the main forces behind the index.
- The UAE dirham is pegged to the US dollar, so DXY moves also shape how the dirham performs against the euro, pound and yen.
What Is the US Dollar Index?
The US Dollar Index, often written as DXY or USDX, is a single number that summarises how the US dollar is performing against six major trading-partner currencies. It was introduced in March 1973, shortly after the Bretton Woods system of fixed exchange rates ended, with a starting value of 100.000.
Today the index is calculated and published by Intercontinental Exchange (ICE), and futures on the index trade on ICE Futures US. “DXY” is the widely used ticker for the index itself.
The US dollar sits on one side of 89.2% of all global FX trades, according to the BIS 2025 Triennial Survey. That central role is why so many traders monitor a single measure of its strength.
Which Currencies Are in the DXY?
The basket and weights were set when the index was created and adjusted once, in 1999, when the euro replaced several European currencies.
|
Currency |
Code |
Weight in DXY |
Related forex pair |
|
Euro |
EUR |
57.6% |
EUR/USD |
|
Japanese yen |
JPY |
13.6% |
USD/JPY |
|
British pound |
GBP |
11.9% |
GBP/USD |
|
Canadian dollar |
CAD |
9.1% |
USD/CAD |
|
Swedish krona |
SEK |
4.2% |
USD/SEK |
|
Swiss franc |
CHF |
3.6% |
USD/CHF |
European currencies together account for about 77% of the index. Major trading partners such as China and Mexico are not included, which is one of the main criticisms of the DXY as a measure of the dollar’s overall value.
How Is the DXY Calculated?
The DXY is a weighted geometric mean of the dollar’s exchange rate against each of the six currencies. Each exchange rate is raised to the power of its weight, the results are multiplied together, and the product is multiplied by a constant of 50.14348112. That constant scales the index so that it equalled 100 in March 1973.
Two practical points follow from the formula:
- Because the euro weight is so large, a 1% move in EUR/USD shifts the DXY far more than a 1% move in USD/SEK.
- For currencies quoted with the dollar second (EUR and GBP), a rise in that pair pushes the index down. For currencies quoted with the dollar first (JPY, CAD, SEK, CHF), a rise pushes the index up.
How to Read DXY Levels
- Above 100: the dollar is stronger against the basket than it was in March 1973.
- Below 100: the dollar is weaker than that baseline.
The number 100 is only a reference point, not a natural balance level. Over its history, the index has ranged from a high of about 164.7 in February 1985 to a low of about 70.7 in March 2008. More important for most traders is the direction and speed of change, rather than the absolute level.
What Moves the US Dollar Index?
The DXY responds to the same forces that move the dollar in individual pairs, seen in aggregate.
Federal Reserve policy and rate expectations
When markets expect US interest rates to rise, or to stay higher than rates elsewhere, the dollar often strengthens. CMS Prime’s guide on how central bank decisions influence forex and commodity markets explains how these expectations transmit to prices.
US economic data
Inflation, employment and growth figures shape rate expectations. Surprises in CPI or payrolls often move the DXY within seconds. The CMS Prime economic calendar shows release times.
Policy abroad, especially at the ECB
Because the euro dominates the basket, European Central Bank decisions and euro-area data can move the DXY as much as US events.
Risk sentiment
During periods of market stress, demand for dollars as a funding and reserve currency can rise, pushing the index higher. The link between inflation, rates and currencies is covered further in how global inflation trends impact currency markets.
Why the DXY Matters to Forex Traders
The DXY is not traded directly on most retail platforms, but it is widely used as a reference chart.
- Confirming dollar direction. If EUR/USD, GBP/USD and USD/JPY all point to dollar strength, a rising DXY confirms the broad move.
- Reading EUR/USD. With a 57.6% euro weight, the DXY frequently looks like an upside-down EUR/USD chart.
- Spotting divergence. If one dollar pair moves against the DXY, the driver may be specific to the other currency rather than the dollar.
- Commodity context. Gold and oil are priced in dollars, so DXY moves often appear in their prices too. CMS Prime’s guide to gold, oil and forex correlation explores these links.
- Managing correlation. Holding several dollar pairs can be a concentrated bet on one currency. The DXY makes that exposure visible.
Why the DXY Matters in the UAE
The UAE dirham has been pegged to the US dollar at 3.6725 since 1997. As a result, when the DXY rises, the dirham generally strengthens against the euro, pound and yen too, and the reverse applies when the index falls.
This link affects the cost of imports, travel and overseas tuition for UAE residents. It also affects how traders with dirham-funded accounts see currency moves in pairs that do not include the dollar.
Limitations of the DXY
- Narrow basket: it excludes China, Mexico and other major US trading partners.
- Fixed weights: the weights have not changed since 1999, even though trade patterns have.
- Euro dominance: the index can move mainly because of euro-area news rather than US developments.
For a broader measure, some analysts use the Federal Reserve’s trade-weighted dollar indices, which include more currencies and update their weights.
Key Risks When Using the DXY in Trading
Using the DXY as a guide does not remove trading risk.
- Correlations between the DXY and individual pairs change over time and can break down during specific events.
- Sharp moves around data releases can affect several dollar pairs at once, increasing losses for traders with correlated positions.
- Leveraged trading magnifies losses as well as gains. CMS Prime’s guide to market volatility discusses how fast conditions can change.
Following the Dollar With CMS Prime
CMS Prime offers the major dollar pairs linked to the DXY basket on MT4 and MT5 through its forex trading offering. The daily market reports and economic calendar provide context on dollar-moving events. For the relationship between rate cycles and currencies, see how interest rate cycles affect multiple markets.
Frequently Asked Questions
What does DXY stand for? DXY is the ticker commonly used for the US Dollar Index, published by ICE. It tracks the dollar against six major currencies: the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc. The index began at 100 in March 1973.
Why does the DXY move opposite to EUR/USD? The euro accounts for 57.6% of the DXY. When EUR/USD rises, the dollar is weakening against the euro, which pulls the index down. Because the euro weight is so large, the two charts often look like mirror images, although they are not identical.
Can the DXY be traded directly? The index itself is a calculation, but futures and options based on it trade on ICE Futures US. Some brokers offer a dollar index CFD. Many retail traders use the DXY as a reference chart and trade the individual currency pairs instead.
Is a DXY above 100 good for the dollar? A reading above 100 simply means the dollar is stronger against the basket than it was in March 1973. It does not indicate whether the dollar will rise or fall next. Direction and pace of change usually matter more than the level.
How does the DXY affect the UAE dirham? The dirham is pegged to the US dollar at 3.6725. When the DXY rises, the dirham usually strengthens against the euro, pound and other basket currencies as well. When the DXY falls, the dirham generally weakens against them.
Does the DXY affect gold prices? Often, yes. Gold is priced in US dollars, so a stronger dollar tends to make gold more expensive for non-dollar buyers, which can weigh on demand. The relationship is not fixed, and both can rise together during periods of stress.
Conclusion
The US Dollar Index (DXY) condenses the dollar’s performance against six major currencies into one number, with the euro making up 57.6% of the weight. It helps forex traders confirm broad dollar direction, read EUR/USD and gold in context, and spot hidden correlation across positions. Its narrow basket and fixed weights are real limitations, and correlations can shift. For UAE residents, the dirham’s dollar peg makes the DXY relevant beyond trading screens. CMS Prime’s market reports, economic calendar and dollar pairs on MT4 and MT5 offer ways to follow these moves.
Risk warning: Trading in financial instruments such as Forex, CFDs, and derivatives involves a high level of risk and may not be suitable for all investors. Past performance is not indicative of future results.
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