How does the dollar index (DXY) work?

The short answer

The DXY (or USDX) is a weighted geometric average of the dollar’s exchange rate against six currencies, calibrated to reflect US trading partners as they were in 1973. The euro entered in 1999, replacing the German mark, French franc, Italian lira, Dutch guilder and Belgian franc, but the underlying weights were not redrawn. Related coverage: the structural determinants of EUR/USD.

This makes the DXY a relic, in some sense. The Chinese renminbi, Mexican peso, Korean won and Indian rupee, all major US trading partners today, receive zero weight. The Swedish krona, by contrast, keeps a place in the basket despite Sweden representing well under 1% of US trade.

Markets continue to use DXY because of liquidity and tradition. The futures contract is heavily traded on ICE, options on DXY are widely available, and the index has become a market lingua franca. The Fed publishes more accurate broad indices (DTWEXBGS, DTWEXAFEGS) but the DXY retains the cultural footprint.

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What the data shows

The DXY’s composition and historical extremes reveal both its usefulness and its limits (ICE Futures, Federal Reserve, 1973-2026):

• Current weights: the euro alone outweighs the five other currencies combined; the yen and the pound come next, then the Canadian dollar, the Swedish krona and the Swiss franc
• Index base: 100 in March 1973. For a public reading of the dollar, the Fed’s broad index (DTWEXBGS, January 2006 = 100) averaged 119.2 in September 2026 (Federal Reserve, H.10)
• Historical high: February 1985, before the Plaza Accord. The Fed’s index of the dollar against major currencies (March 1973 = 100), a close public cousin of the DXY, peaked at about 144 in March 1985 (Federal Reserve, H.10)
• Historical low: March 2008, during the housing crisis. The Fed’s major-currencies index touched about 70 that month, then its series low of about 69 in August 2011
• The DXY is essentially a EUR/USD proxy: given the euro’s weight, most of a EUR/USD move passes straight into the index
• The Fed’s broad trade-weighted dollar index includes 26 currencies and tracks much closer to actual US trade flows

The result is that DXY moves can diverge from broader measures of dollar strength. During the 2014-2015 dollar rally, the Fed’s major-currencies index rose about 23% between June 2014 and December 2015, against about 20% for the broad index, because emerging market currencies, which only the broad index includes, had not depreciated as much as the euro and yen.

Fed data since 2006, when the broad index begins, place the divergence in three configurations. A regional shock to a major developed economy (the euro-area sovereign debt crisis of 2010-2012, Brexit in 2016, the European energy shock of 2022) makes the euro-heavy DXY overreact: from January 3 to the September 26, 2022 peak, the DXY rose much more than DTWEXBGS, which gained 11%. A shock confined to emerging markets does the reverse. During the May-August 2013 taper tantrum, DTWEXBGS rose 3.7% while the DXY barely moved. A U.S. tightening that hardens global financial conditions lifts both.

To split a broad move, the Fed has published since January 2019 two sub-indices built on the same method: DTWEXAFEGS for advanced foreign economies and DTWEXEMEGS for emerging market economies. In the 2026 weights, emerging-market currencies make up 50.8% of the broad basket, the Mexican peso (14.8%) and the yuan (10.9%) among them.

→ Dataset: US Dollar Index (DTWEXBGS)

Why it happens: the macro mechanism

Understanding what DXY measures, and what it does not, clarifies its uses and pitfalls.

What DXY actually tracks. Because of the euro’s majority weight, DXY effectively measures the dollar against advanced European economies plus a small Japanese addition. It is a very good gauge of dollar strength against the developed world’s other major reserve currencies. It is a poor gauge of dollar strength against the emerging world or Asia (excluding Japan).

Why composition matters less than people think. Despite its outdated weights, DXY correlates strongly with broader USD measures over multi-year periods because the major reserve currencies tend to move together. The bilateral USD strength against the euro and the bilateral USD strength against the renminbi are both driven by the same global financial cycle factors: they diverge in shocks but co-move on trend.

The conventional view treats DXY as the dollar’s price. The empirical reality is that DXY is a specific, narrow measure that has become culturally enshrined despite better alternatives existing. For market signals on liquid assets (Treasuries, S&P 500, gold) DXY works well precisely because those assets are also priced relative to the same advanced-economy block.

Why the Fed’s broad index is technically superior. The DTWEXBGS includes 26 currencies weighted by current trade shares and updated annually. It captures EM currency moves, includes the renminbi, and reflects modern trade patterns. For analysing trade competitiveness or monetary policy spillovers, it is the right tool.

Synthesis by regime: at the 1985 peak, the dollar was strong against the major European currencies and the broad picture was similar, before globalisation; at the 2008 low, the gap between DXY and broader measures widened as EM currencies stayed firm; in its modern trading range, DXY moves track major flows in advanced economy assets but understate the dollar’s role against EM currencies and the renminbi. The regime parameter is the share of US trade with non-DXY economies.

The DXY is the most-watched dollar index that nobody should use for trade analysis: its longevity is cultural, not analytical.

→ Framework in view: The dollar in the global monetary system

What it means for different economic actors

Savers watching financial news will see DXY referenced constantly. Knowing that it is essentially a EUR/USD proxy with a small Japanese twist helps interpret why it moves on European political news but barely reacts to Chinese policy changes.

Investors in commodities, US large caps, or gold use DXY because these assets correlate well with it. For emerging market exposure, DXY is misleading: the Fed’s broader USD index or specific EM currency baskets are better.

Corporations assessing FX risk on their actual trade flows should ignore DXY entirely. The relevant measure is a custom basket weighted by their own export and import flows, which often looks nothing like the DXY composition.

A common error is using DXY as a measure of dollar valuation versus the world. The world has changed since 1973: DXY has not.

Practical observation

Go deeper

Related questions

• Why is the euro-dollar rate watched globally?
• What makes the dollar the global reserve currency?
• How do exchange rates affect trade balances?
• How does dollar funding stress manifest in global markets?

Frequently asked questions

Why was DXY created in 1973?

The Bretton Woods system collapsed in August 1971 when Nixon ended dollar convertibility into gold. The major currencies began floating, and there was no standard way to measure dollar strength. The Federal Reserve created the DXY in March 1973 with a base value of 100 to provide a benchmark, using trade weights from the late 1960s. ICE (then the New York Cotton Exchange) launched DXY futures in 1985, locking in the composition for trading purposes. The wider context: our strong dollar-versus-weak dollar comparison.

Should the DXY composition be updated?

This is a long-running debate. Updating would acknowledge modern trade patterns but disrupt decades of historical comparisons. ICE and the Fed have both chosen continuity over accuracy: the Fed publishes the broad trade-weighted indices (DTWEXBGS) as the analytically correct alternative. Markets have implicitly resolved the debate: DXY for trading and short-term commentary, broad indices for macro analysis.

How does DXY relate to currency hedging?

For institutional investors hedging international equity portfolios, DXY-based hedges work reasonably well for European and Japanese exposures but poorly for emerging market exposures. Sophisticated currency overlay programmes use bespoke baskets matching the underlying portfolio’s currency composition rather than relying on DXY. Retail products like dollar-tracking ETFs typically use DXY because of its trading liquidity, accepting the composition mismatch.

Last updated — 29 October 2026