If US stocks have an index, the US currency can’t be far behind.
The US Dollar Index is available to currency dealers. (USDX).
And, to be precise, the ICE US Dollar Index.
The US Dollar Index is a geometric weighted average of the value of a basket of international currencies against the US dollar.
Okay, let’s break it down before you fall asleep after that extremely geeky definition.
It functions similarly to stock indices, giving a broad indication of the worth of a basket of securities. Of course, the “security” in question here is another important world currency.
The US Dollar Index Currency Basket
The U.S. Dollar Index consists of SIX foreign currencies. They are the:
- Euro (EUR)
- Japanese Yen (JPY)
- British Pound (GBP)
- Canadian dollar (CAD)
- Swedish Krona (SEK)
- Swiss Franc (CHF)
The euro is the official currency of 19 of the European Union’s 27 member nations.
Add the currencies of the other five nations (Japan, the United Kingdom, Canada, Sweden, and Switzerland).
You also get 24!
Although 24 countries represent a small portion of the globe, many other currencies closely track the US Dollar index.
As a result, the USDX is an excellent tool for measuring the global strength of the US currency.
USDX is available on the Intercontinental Exchange (ICE) as a futures product (DX). It can also be purchased as exchange-traded funds (ETFs), contracts for difference (CFDs), and futures.
ICE U.S. Dollar Index®
Legally, the terms “U.S. Dollar Index,” “Dollar Index,” and “USDX” are copyrights and service marks of ICE Futures U.S., Inc.
ICE, also known as Intercontinental Exchange Group, is the sole owner of the US Dollar Index.
Intercontinental Exchange Group (ICE) is a global exchange, clearing, financial data, and technology business with markets and services in nine asset classes.
In the United States, Canada, Europe, and Singapore, ICE runs 13 regulated exchanges, including ICE futures and OTC exchanges. It is also the parent firm of the famous New York Stock Exchange.
Today, the business is one of the world’s biggest exchange groups.
So now you know why you see “ICE U.S. Dollar Index®.” It is a privately held and trademarked brand.
Since the start of futures trading on the US Dollar Index in 1985, ICE has compiled, maintained, determined, and weighted the index’s components.
The US Dollar Index is available for trading as a futures instrument on the ICE platform 24 hours a day, seven days a week. The liquidity for the US Dollar Index futures contract comes straight from the spot currency market, which is estimated to have a daily turnover of more than $2 trillion.
The ICE U.S. Dollar Index futures contract is the only publicly available, regulated market for U.S. Dollar Index trading, providing futures traders around the globe with virtually round-the-clock access.
This is why the ICE U.S. Dollar Index (USDX) futures contract is regarded as the main benchmark for the international value of the US dollar and the most widely traded currency index in the world.
USDX vs. DX vs. DXY
If you Googled “US Dollar Index,” you might have come across three acronyms: USDX, DX, and DXY and thought, “What is the difference between them?!”
What is USDX?
The US Dollar Index is abbreviated as USDX. If you’re referring to the initial dollar index, you can’t go wrong with this term.
What is DX?
The futures contract’s ICE Exchange symbol is DX, followed by the month and year number.
Although various data providers may use different symbols, the ICE Exchange symbol for the value of the underlying Dollar Index (also known as the cash or spot index) is also DX (without a month or year code).
What is DXY?
DXY is a common ticker or symbol among Bloomberg Terminal users, so the index is also known as the “Dixie.”
DXY is more frequently used to refer to the cash or spot rate of the US dollar, whereas DX is more suited to futures traders. Although, as previously stated, DX can also apply to the spot rate.
US Dollar Index (USDX) Components
Now that we know what makes up the currency basket, let’s get back to the “geometric weighted average” portion.
Because no two countries are the same size, it is only reasonable that suitable weights be assigned to each when calculating the US dollar index.
Examine the present weights:
With 19 nations, euros account for a sizable portion of the US Dollar Index.
The Japanese yen is the next highest, which makes sense given that Japan has one of the world’s largest currencies.
The other four account for less than 30% of the USDX.
Here’s a thought…
Which direction does the US Dollar Index move when the euro falls?
The euro accounts for such a large portion of the US Dollar Index that we might as well name it the “Anti-Euro Index.”
Due to the USDX’s reliance on the euro, traders have sought a more “balanced” dollar indicator.
We will cover two other U.S. dollar indexes later:
1. Trade Weighted Dollar Index
2. Bloomberg Dollar Spot Index
As a currency trader, you should be familiar with ALL three of them.
Is the ICE U.S. Dollar Index adjusted or rebalanced?
The ICE US Dollar Index is not adjusted or rebalanced on a daily basis.
When the euro was adopted as the common currency for the European Union (EU) bloc of countries, the Index was adjusted once.
ICE, specifically ICE Futures U.S., monitors the index methodology to ensure that it accurately represents the covered currencies and the FX market as a whole, and makes changes as needed.
How is the U.S Dollar Index Calculated?
The ICE US Dollar Index is computed in real time every 15 seconds. This real-time calculation is shared with all data providers.
The market determines the prices of DX futures contracts, which represent interest rate differentials between the respective currencies and the US dollar.
Where can I get real-time prices for the ICE U.S. Dollar Index?
Market data vendors and WebICE provide real-time prices for the actual cash US Dollar Index and futures contracts based on the US Dollar Index. (an Internet-based subscription service that provides real-time access to trading activity on the ICE trading platform).
Basically, because ICE manages the price data and charges a fee for the data feed, access to real-time data is not free!
Bloomberg, MarketWatch, CNBC, WSJ, and Yahoo! Finance all have delayed values for the cash US Dollar Index.
The ICE website has delayed values for ICE U.S. Dollar Index futures.