What Is the U.S. Dollar Index?

The U.S. Dollar Index is an index that measures the value of the U.S. dollar against a basket of major foreign currencies. The index aims to track the performance of the U.S. dollar in the global market and assess its strength or weakness against other currencies. Learn more about the U.S. Dollar Index (USDIDX) and trade it on Headway!

The history of the index

The index was created in 1973 and is currently managed by the Intercontinental Exchange (ICE). The currency basket used in calculating the index includes the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc.

The U.S. Dollar Index is calculated using the exchange rate of the U.S. dollar against each currency in the basket and the weight of each currency in the index. The index changes with fluctuations in the value of the U.S. dollar against foreign currencies over a specific time period, reflecting the strength or weakness of the U.S. dollar compared to other currencies.

How does the index work?

The relationship between the basket of major currencies. The U.S. Dollar Index is, therefore, a direct relationship because the index is influenced by changes in the value of the U.S. dollar against these major currencies. 

When the U.S. Dollar Index increases, it means that the U.S. dollar has generally appreciated in value against these major currencies. Conversely, when the U.S. Dollar Index decreases, it means that the U.S. dollar has generally depreciated in value against these major currencies.

The value of the U.S. Dollar Index is influenced by several factors: inflation, U.S. interest rates, monetary policy, economic stability, and geopolitical shifts. Therefore, the impact of these factors on the value of the U.S. dollar is directly reflected in the U.S. Dollar Index and, consequently, in the value of the basket of major currencies.

How does gold influence the index?

The relationship between gold and the U.S. Dollar Index is typically inverse or indirect. This means that in many cases when the U.S. Dollar Index rises, the price of gold tends to decrease. Conversely, when the U.S. Dollar Index falls, the price of gold tends to rise.

There are several factors that influence this relationship. One of these factors is that gold is considered a safe haven and reflects economic and political uncertainties. When the global economy faces pressures and uncertain trends, investors tend to seek gold as a safe haven, leading to an increase in its prices.

On the other hand, the U.S. dollar is considered the global reserve currency. When the U.S. dollar rises, it reflects the strength of the U.S. economy and increases its attractiveness as a safe currency, resulting in a decline in gold prices as a result.

However, there are also other factors that affect gold prices, such as jewelry demand, industrial uses, and investment demand. These factors may also lead to independent changes in the price of gold separate from the U.S. Dollar Index.

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