USDX QUICK FACTS
Here are some interesting tidbits of knowledge you may or may not know about the US Dollar Index.
The US Dollar Index is not a currency.
The most important thing to understand about USDX is that it is not an actual currency, but rather a weighted basket of individual currencies (analogous to a stock market index like the Dow Jones Industrial Average) indexed to provide a relative measure of the US Dollar as it trades against these currencies. As of April, 2015, the constitution of the Index was as shown in the pie chart below. As indicated, the single most important weighting was for the Euro, which constituted 57.6% of the total valuation of the index. In practical terms, this means that the Euro exerts an influence, in weighted terms that is more than four times as significant as the next most heavily weighted currency in the index, the Japanese Yen. Put more plainly, the highest correlation of the USDX to any individual currency pair is to EUR/USD.
The list of individual currencies included in the USDX has been changed only once since its inception in 1973, when the Bretton Woods system was dismantled, allowing the Dollar to be traded freely and without a peg to the gold standard. That change occurred in 1999, when several European currencies were subsumed by the Euro, so that the predecessor currencies of Germany and France were no longer included.
The US Dollar Index goes by several different tickers and two different price formats.
Unlike the Euro, or Pound Sterling, or the Singapore Dollar, or virtually any currency you care to name, the US Dollar Index has more than one ticker. In this service, we use the commonly accepted “USDX” moniker. But you can find the Dollar Index also referred to elsewhere as “DXY”, “$DXY”, “US@DX”, “NDX”, “IND”, “$IND”, “$USD”, and “DXX”. The price quote for USDX is a five-digit quote (before the decimal) and so in April, 2015, a price figure of 12,000 was typical. By contrast, the price quote for DXY is a two-digit quote (before the decimal) and so in April, 2015, a corresponding price figure on that index of 98.00 was typical. Despite the differences in tickers and denomination of price quote, all the above noted index instruments reflect the same relative price movement at any given time.
USDX is traded as a Futures contract and also as an Exchange-Traded Fund (ETF).
USDX can be traded as a Futures contract on the Intercontinental Exchange (ICE), with roughly the same 24/6 availability as the Forex market, from Sunday evening New York time, to Friday afternoon New York time. Additionally, the US Dollar is accessible as an ETF (Exchange Traded Fund), of which the most popular, as of April, 2015 included the following:
- UUP: DB USD Index Bullish
- USDU: Bloomberg U.S. Dollar Bullish Fund
- UUPT: 3x Long U.S. Dollar Index Futures ETN
- UDN: DB USD Index Bearish
- UDNT: 3x Short U.S Dollar Index Futures ETN
The DXY (two-digit) version of the price quote for the Dollar Index has a special meaning.
Because the USDX commenced in 1973 with an initial value of exactly 100.00, wherever the Index level stands at any given time indicates its relative value in relation to its 1973 starting point. Since that time, the DYX (two-digit) price quote has ranged from an all-time high of 164.72 in February, 1985, to an all-time low of 70.698 in March, 2008. That means that the 1985 high represented roughly 65% higher relative value in than in 1973, and the 2008 low reflected a relative decrease in value of almost 30% from 1973. At given time in history, you can tell the relative value of the Dollar, not only against other currencies, but against its historical range dating from inception of the index in 1973.
The US Dollar has a pervasive influence on the entire global Forex market.
By far, the single most pervasive and widely influential currency in terms of share of total annual daily turnover in the global Forex market, is the US Dollar. According to the Bank of International Settlements Triennial Survey form 2013, in that year, the US Dollar (quote) “remained the dominant vehicle currency; it was on one side of 87% of all (Forex) trades in April 2013”. The next most widely traded currency was the Euro, but its share fell relative to the Dollar from 2010 to 2013. Reflecting the dominance firstly of the US Dollar and secondly of the Euro, the EUR/USD pair was the single most widely traded in 2013, constituting 24.1% of average daily turnover in the global Forex market and almost double in terms of significance to the next most widely traded pair that year, which was USD/JPY. Simply put, if the US Dollar is the one individual currency amongst all that has an outsized significance in terms of daily price action and turnover, then it only makes logical sense that a trader making buys and sells on any currency pair involving the USD should take the time to understand what is happening with this critical benchmark.