It is sometimes observed that there are ambiguities and misunderstandings of the currency index among novice Forex traders and analysts. This article tries to answer the question in simple language what is the dollar index. It is first necessary to explain how valuation and the nature of currency changes.
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The cause of changes in the price of any currency or commodity is determined by the supply and demand of that currency or commodity. For example, sometimes investments lead to gold and the same factor increases the price of gold. Or when there is an economic crisis or widespread political and security problems in a country, the demand for investment in that country decreases and the currency of that country also decreases.
But what is the dollar index?
The dollar index is a measure of the change in the price of the US dollar compared to a basket of the most important international currencies, which are the most important trading partners of the United States. This is a weighted average basket of six major currencies that belong to 24 countries. (19 European countries with the euro currency plus five other countries.)
This currency basket with its weight percentages is as follows:
Euro (57.6%), Japanese Yen (13.6%), British Pound Sterling (11.9%), Canadian Dollar (9.1%), Swedish Krona (4%). درصد 2% and Swiss Franc with a weight of 3.6%.
The currencies in this basket were reviewed once in early 1999, when the currencies of several European countries were collected in the form of the euro. It is also believed today that, given that countries such as China, South Korea, Mexico and Brazil are important US trading partners but their currencies do not interfere with the US dollar index, it is time to reconsider the US dollar index portfolio. it is arrived.
The calculation of the US dollar index, which is also expressed in USDX or DXY form, began in March 1973 and at the beginning of the calculation of this amount is 100.
Sometimes some novice friends misunderstand the concept of the US dollar index currency basket like the asset basket and mistakenly think that increasing the value of this basket will increase the dollar value, but the opposite is true!
We have already stated in the introduction that the value of each currency is expressed against another currency. In other words, an increase in the value of the euro reduces the value of the dollar and vice versa. Therefore, note that increasing the currencies in this currency basket will reduce the US dollar index.
For example, when the dollar index is 120, it indicates a 20% increase in the value of the dollar against the currencies in the basket compared to the year the dollar index began (March 1973). In other words, the average decrease in the currencies of this basket by 20% compared to the dollar.
We hope you have given us enough explanation and that your question about what the US dollar index is in general has been resolved. In the next article, we will explain the importance of analyzing the US dollar index.
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