The U.S. Dollar Index (DXY) is a widely tracked benchmark that measures the strength of the U.S. dollar (USD) against a basket of six major foreign currencies. Launched in 1973 after the Bretton Woods system collapsed, it provides traders and investors with a snapshot of the dollar’s global purchasing power.

Currency Composition & Weightings
The DXY basket consists of:

Euro (EUR) – 57.6% (the dominant component)

Japanese Yen (JPY) – 13.6%

British Pound (GBP) – 11.9%

Canadian Dollar (CAD) – 9.1%

Swedish Krona (SEK) – 4.2%

Swiss Franc (CHF) – 3.6%

The euro’s heavy weighting means DXY is highly sensitive to Eurozone economic data and ECB policy shifts. Notably, emerging market currencies like the Chinese yuan (CNY) are excluded, which some argue limits its accuracy in reflecting modern USD dynamics.

Why Traders Monitor DXY
Forex Correlation: A rising DXY often weakens EUR/USD and GBP/USD, while boosting USD/JPY.

Commodities & Stocks: A stronger DXY typically pressures gold and oil (priced in USD) and can hurt U.S. multinational earnings.

Federal Reserve Policy: DXY surges when the Fed hikes rates, signalling global dollar demand.

While DXY remains a key benchmark, critics suggest supplementing it with trade-weighted dollar indices (like the Fed’s TWDI) for a broader perspective.