US Dollar Index®: What It Is and Its History
Currencies Used in the U.S. Dollar Index
The U.S. dollar index® is a measurement of the dollar's value relative to six foreign currencies as measured by their exchange rates. Over half the index's value is represented by the dollar's value measured against the euro. The other five currencies include the Japanese yen, the British pound, the Canadian dollar, the Swedish krona, and the Swiss franc.
The Index Formula
The dollar index is calculated using the following formula of currency pairs:
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, which is a positive number when the U.S. dollar is the base currency. It's a negative number when the U.S. dollar is the quote currency.
Euros and pounds are the only two currencies where the U.S. dollar is the base currency because they're quoted in terms of the dollar. For example, a euro might be worth $1.13. The others are quoted in terms of how many units a U.S. dollar will buy. For example, a dollar might be worth 109 yen.
The Federal Reserve created the index in 1973 to keep track of the dollar's value. This was right after President Nixon abandoned the gold standard, which 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 per ounce of gold, and 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 the establishment of its base value. It changes constantly in reaction to shifts in the ongoing forex trades. It's all-time high was 163.83 on March 5, 1985. The dollar was 63.83% higher than in 1973. Its all-time low was 71.58 on April 22, 2008, 28.42% lower than at its inception.
The ICE Futures U.S. took over management of the USDX in 1985, and futures trading on the USDX began.
This is the U.S. dollar index® historical data, as measured by the DXY for the period from 2007 through 2019:
2007: The dollar's value, as measured by the DXY spot price, was 76.70 on Dec. 31.
2008: The dollar ended the year at 82.15 after falling to a low of 71.30 on March 17 shortly after the Bear Stearns bailout signaled damage from the subprime mortgage crisis. At that time, investors thought it only affected the U.S. and they bought euros. The Fed lowered the fed funds rate seven times. It initiated quantitative easing on Nov. 25. By the end of the year, it was clear that 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 that 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 Nov.3.
2011: The DXY fell to 73.10 due to the U.S. debt crisis on May 2. 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: The Fed announced on June 19 that it would taper off QE purchases. Investors sold bonds in a panic, driving the yield on the 10-year Treasury note up 1%. 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 that it would raise the fed funds rate in 2015. The dollar rose 15% to 91.92 by Dec. 29.
2015: The European Central Bank announced that it would begin QE in March, and 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% from its 2014 low. The Fed raised its benchmark rate to 0.5% on Dec. 17, and the dollar ended the year at 98.69 on Dec. 27.
2016: The dollar fell to its 2016 low of 93.08 on April 29, then, on Dec. 14, the Fed raised the fed funds rate to 0.75%. It ended the year at 102.95 on Dec. 11. It had risen 28% since July 2014.
2017: Europe's economy improved, strengthening the euro. Hedge funds began shorting the dollar. The Fed raised rates on March 15, June 14, and Dec. 13. The European Central Bank signaled that it might end QE in the fall on July 20. The dollar fell to 91.35, its low for that year, on Sept. 8. It ended the year at 92.12.
2018: The dollar continued its decline early in the year. The DXY fell to its low for the year of 88.59 on Feb. 15, down 14% from its 2016 high. Investors were paring back their dollar investments as Europe's economy continued to strengthen. But then the U.S. economy improved while others' faltered. The dollar index hit its 2018 high of 97.54 on Nov. 12 and ended the year at 96.17.
2019: The dollar rose until April 24 when it peaked at 98.20. It fell to its low for the year of 95.98 on June 24. It then rose to its high of the year of 98.52 on July 31 when the Fed lowered the fed funds rate to 2.25%.
|Year||DXY Close||Factors Driving Dollar's Value|
|1967||121.79||Gold standard kept dollar at $35/oz|
|1968||121.96||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|
|1979||85.82||Fed raised rate to 20% to stop inflation|
|1981||104.69||Reagan tax cut|
|1983||131.79||Tax hike. Increased defense|
|1984||151.47||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 and JGTRRA|
|2005||90.96||War on Terror doubled debt and weakened the dollar|
|2006||83.43||War on Terror doubled debt and weakened the 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 and debt crisis|
|2012||79.77||QE3 and QE4 fiscal cliff|
|2013||80.04||Taper tantrum, government shutdown, debt crisis|
|2014||90.28||Ukraine crisis and Greek debt crisis|
|2015||98.69||Fed raised rates|
|2016||102.21||Fed raised rates|
Sources: Close as of the last business day of the year. "DXY Interactive Chart," MarketWatch. A higher number indicates a stronger dollar.
See DX.F from Stooq.com for data earlier than 2007. It's a futures indicator that gives an idea of where the dollar stood compared to its history.
The ICE Futures U.S. "U.S. Dollar Index Contracts," Page 2. Accessed Dec. 8, 2020.
Federal Reserve History. "Creation of the Bretton Woods System." Accessed Dec. 8, 2020.
MarketWatch. "Historical Quote for DXY." Accessed Dec. 8, 2020.
Board of Governors of the Federal Reserve System. "Open Market Operations." Accessed Dec. 8, 2020.
Board of Governors of the Federal Reserve System. "Federal Reserve Announces the Creation of the Term Asset-Backed Securities Loan Facility (TALF)." Accessed Dec. 8, 2020.
European Central Bank. "Key ECB Interest Rates." Accessed Dec. 8, 2020.
Board of Governors of the Federal Reserve System. "FOMC Statement." Accessed Dec. 8, 2020.
Board of Governors of the Federal Reserve System. "September 21, 2011, Federal Reserve Issues FOMC Statement." Accessed Dec. 8, 2020.
Congressional Research Service. "Monetary Policy and the Federal Reserve: Current Policy and Conditions," Pages 15-16. Accessed Dec. 8, 2020.
Board of Governors of the Federal Reserve System. "June 19, 2013, Federal Reserve Issues FOMC Statement." Accessed Dec. 8, 2020.
FRED Economic Data. "10-Year Treasury Constant Maturity Rate." Accessed Dec. 8, 2020.