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The U.S. Dollar Index

Wed, Mar 19 2008, 16:46 GMT
by Valerie Wood

Energy Solutions, Inc.

The U.S. Dollar Index (USDX®) is an index of the of the United States dollar relative to a basket of foreign currencies. The USDX® is a weighted geometric mean of the dollar’s compared to the Euro (EUR), Japenese yen (JPY), Pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF) relative to March 1973. The USDX® measures the dollar’s general value relative to a base of 100.00. For example, a quote of 105.50 means that the dollar’s value has risen 5.5 percent since this base period.

March 1973 was chosen as a base period because it represents a significant milestone in foreign exchange history when the world’s major trading nations allowed their currencies to float freely against each other. This agreement was reached at the Smithsonian Institution in Washington, DC and was a victory for free market theorists. The Smithsonian agreement replaced the unsuccessful fixed rate regime established approximately 25 years earlier at Bretton Woods, New Hampshire.

The current level of the USDX® reflects the average value of the dollar relative to this 1973 base period. In March 1973, the value of the dollar index was 100.00. Since that time, the U.S. Dollar Index has traded as high as the mid-160’s and it recently set a new low of 71.99 on March 13, 2008. The index is updated 24 hours a day, 7 days a week.

Just as the Dow Jones Industrial Average provides a general indication of the value of the U.S. stock market, the U.S. Dollar Index (USDX®) provides a general indication of the international value of the U.S. Dollar. It is also important to note that the currencies and weights used in the calculation of the USDX® are the same as those used in the Federal Reserve Boards trade-weighted U. S. Dollar Index.

Similar to the stock market, investors can purchase the U.S. Dollar Index (USDX®\) through IntercontinentalExchange ® (ICE), which is considered a competing trading exchange to the New York Mercantile Exchange (NYMEX). ICE operates global commodity and financial products marketplaces and is probably considered the world’s leading electronic platform for energy markets and soft commodity exchange. USDX® futures contracts trade electronically on the ICE electronic trading platform as well as an open outcry platform on ICE’s Future U.S.’s New York and Dublin trading floors.

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FXstreet.com USD Index Chart

Published on  Tue, Mar 25 2008, 15:50 GMT