FX

DXY (US Dollar Index)

A weighted basket of USD vs six major currencies (EUR 57.6%, JPY 13.6%, GBP 11.9%, CAD 9.1%, SEK 4.2%, CHF 3.6%) — the standard USD benchmark.

Definition

DXY is a euro-heavy basket from the 1973 Bretton Woods era. It's not a true trade-weighted index (the Fed's broad dollar index serves that purpose), but it's the most-traded USD benchmark in liquid markets.

A rising DXY is generally risk-off for global assets, tightening dollar liquidity and pressuring EM.

Why it matters

DXY is a key cross-asset macro signal. Equity strategists, EM allocators, and commodity traders all watch it as a common factor.

Worked example

Q3 2022: DXY hit 114, a 20-year high, coincident with global equity drawdowns, EM debt selloffs, and gold weakness. The peak preceded the Q4 risk rally.

Frequently asked

How is DXY different from the trade-weighted dollar?⌄
DXY is fixed-weight and euro-heavy; the Fed's broad dollar index updates weights based on actual trade volumes and includes EM currencies.
What drives DXY?⌄
Rate differentials, risk-off flows, US growth surprises, and oil prices (which affect commodity-currency components).
Does a strong DXY mean a strong economy?⌄
Not necessarily. Risk-off flows can lift DXY even when US growth weakens (flight to dollar).
What's the relationship with US equity?⌄
Historically negative, but weak and regime-dependent. The correlation tightens in risk-off episodes.

Related terms

Dollar Liquidity

FX

Carry Trade

FX

EM Fragility

FX

FX Cross-Currency Basis

FX

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