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What is the DXY?
By Market Ontology Research
The US Dollar Index (DXY) measures the value of the US dollar against a weighted basket of six major currencies: the euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%), and Swiss franc (3.6%). Because the euro dominates the basket, DXY is largely a USD/EUR proxy. A rising DXY tends to weigh on commodities, EM equities, and US large-cap multinationals' foreign earnings.
- EUR-heavy
- 57.6% euro weight makes DXY largely USD/EUR.
- Drivers
- Rate differential, growth differential, risk sentiment.
- Inverse to commodities
- Strong USD usually weighs on oil, gold, copper.
- EM headwind
- Strong USD tightens EM dollar-funding conditions.
The DXY basket
| Currency | Weight | |---|---| | EUR | 57.6% | | JPY | 13.6% | | GBP | 11.9% | | CAD | 9.1% | | SEK | 4.2% | | CHF | 3.6% |
The basket is unchanged since 1999 - it does not include the yuan, won, or peso despite their growing trade weight.
What drives DXY
- Rate differential - US 2Y vs Bund/JGB
- Growth differential - US vs EU/Japan
- Risk sentiment - risk-off flows often bid USD
- Fed reaction function - hawkish Fed = stronger USD
What strong DXY signals
- Headwind for commodities priced in USD
- Pressure on EM (dollar-funded debt)
- Drag on US large-cap foreign earnings
- Tighter global financial conditions