U.S. Dollar Index®: What It Is and Its History
Six Currencies Used in the U.S. Dollar Index
The U.S. dollar index® is a measurement of the dollar's value according to a basket of six exchange rates. Over half of the value is the dollar's value measured against the euro. The other five currencies are the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.
The dollar index is calculated by the following formula.
USDX = 50.14348112 × EURUSD -0.576 × USDJPY 0.136 × GBPUSD -0.119 × USDCAD 0.091 × USDSEK 0.042 × USDCHF 0.036
The value of each currency is multiplied by its weight. Note that the weight is a positive number when the U.S. dollar is the base currency, and negative when the U.S. dollar is the quote currency. Euros and pounds are the only two where the U.S. dollar is the base currency. That's because they are quoted in terms of dollar. For example, a euro is worth $1.13. The other four are quoted in terms of how many a U.S. dollar will buy. For example, a dollar is worth 109 yen.
In 1973, the Federal Reserve created the index to keep track of the dollar's value. It was right after President Nixon abandoned the gold standard that year. It allowed the value of the dollar to float freely in the world's foreign exchange markets. Before the creation of the dollar index, the dollar was fixed at $35/ounce of gold. It had been that way since the 1944 Bretton Woods Agreement.
The dollar index began at 100.
The index has measured the percent change in the dollar's value since then. It changes constantly in reaction to shifts in the ongoing forex trades. For example, its all-time high was 163.83 on March 5, 1985. That meant the dollar was 63.83 percent higher than in 1973. Its all-time low was 71.58 on April 22, 2008.
That meant it was 28.42 percent lower than its inception.
In 1985, the ICE Futures U.S. took over the management of the USDX. That's the year that futures trading on the USDX began.
Here is U.S. dollar index® historical data, as measured by the DXY, for the last 10 years.
2007: The dollar's value, as measured by the DXY spot price, was 76.70 on December 31.
2008: The dollar ended the year at 82.15 after falling to a low of 71.30 on March 17, 2008. That was shortly after the Bear Stearns bailout signaled damage from the subprime mortgage crisis. At that time, investors thought it only affected the United States, and bought euros. The Fed lowered the fed funds rate 8 times. It initiated quantitative easing on November 25. By the end of the year, it was clear the 2008 financial crisis was worldwide. Investors returned to the dollar as a safe haven.
2009: The DXY ended the year at 77.92. The European Central Bank lowered rates, signaling it was responding to the crisis.The dollar fell as investors confidence in the euro rose.
2010: The DXY rose to 88.26 on June 4, marking its high for the year. It fell to 78.96 by the year's end despite the Fed's launch of QE 2 on November 3.
2011: On May 2, the DXY fell to 73.10 due to the U.S. debt crisis. Investors returned to the dollar after the eurozone crisis. The Fed launched Operation Twist in September. The DXY ended the year at 80.21.
2013: On June 19, the Fed announced it would taper off QE purchases. Investors sold bonds in a panic, driving the yield on the 10-year Treasury note up 1 percent. The Fed delayed tapering until December. The DXY closed the year at 80.04.
2014: The dollar remained stable for the first six months, hitting 80.12 on July 10. The Ukraine crisis and Greek debt crisis drove investors out of the euro and into the dollar as a safe haven. The Fed ended QE in October. It held an unprecedented $4.5 trillion in Treasury notes.
It announced it would raise the fed funds rate in 2015. By December 29, the dollar had risen 15 percent to 91.92.
2015: The European Central Bank announced it would begin QE in March. The euro fell to $1.0524 on March 12. The USDX hit the year's high of 100.18 on March 16, 2015. The dollar strengthened 25 percent from its 2014 low. On December 17, the Fed raised its benchmark rate to 0.5 percent. On December 27, the dollar ended the year at 98.69.
2016: On April 29, the dollar fell to its 2016 low of 93.08. On December 14, the Fed raised the fed funds rate to 0.75 percent. On December 11, it ended the year at 102.95. Since July 2014, it had risen 28 percent.
2017: Europe's economy improved, strengthening the euro. Hedge funds began shorting the dollar. The Fed raised rates on March 15, June 14, and December 13. On July 20, the European Central Bank signaled it might end QE in the fall. The dollar fell to 91.35, its low for that year, on September 8, 2017. It ended the year at 92.12.
2018: Dollar continues its decline. DXY fell to 88.59 on February 15. It had fallen 14 percent since its 2016 high. Investors were paring back their dollar investments as Europe's economy continued to strengthen.
|Year (last business day)||DXY Close||Factors Driving Dollar's Value|
|1967||121.79||Gold standard kept dollar at $35/oz.|
|1969||121.74||Dollar hit 123.82 on 9/30.|
|1973||102.39||Gold standard ended. Index created in March.|
|1976||104.56||Fed lowered rate.|
|1978||86.50||Fed raised rate to 20% to stop inflation.|
|1981||104.69||Reagan tax cut.|
|1983||131.79||Tax hike. Increased defense.|
|1985||123.55||Record of 163.83 on March 5.|
|1988||92.29||Fed raised rates.|
|1993||97.63||Balanced Budget Act.|
|1995||84.83||Fed raised rate.|
|2000||109.13||Tech bubble burst.|
|2001||117.21||Dollar rose to 118.54 on 12/24 after 9/11 attacks.|
|2002||102.26||Euro launched as a hard currency at $.90.|
|2003||87.38||Iraq War. JGTRRA.|
|2005||90.96||War on Terror doubled debt. It weakened dollar.|
|2007||76.70||Euro rose to $1.47.|
|2008||82.15||Record low of 71.30 on 3/17.|
|2009||77.92||ECB lowered rates.|
|2011||80.21||Operation Twist. Debt crisis.|
|2012||79.77||QE3 and QE4. Fiscal cliff.|
|2013||80.04||Taper tantrum. Government shutdown. Debt crisis.|
|2014||90.28||Ukraine crisis. Greek debt crisis.|
|2015||98.69||Fed raised rates.|
(Sources: "DXY Interactive Chart," Marketwatch. For data earlier than 2007, I used the DX.F from Stooq.com. It is a futures indicator that at least gives you an idea of where the dollar stood compared to its history. If you have historical data from a better source, please email me at firstname.lastname@example.org.)