The US Dollar Index (DXY) is a measure of the value of the US. dollar relative to a basket of six major foreign currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. Established in 1973, the DXY serves as a benchmark for assessing the dollar’s strength in the global currency market. It was originally developed by the US Federal Reserve.
The index is widely used by traders, investors, and policymakers to gauge the dollar's performance in response to economic trends, geopolitical events, and monetary policy decisions. A rising DXY indicates a strengthening dollar, while a declining DXY reflects a weaker dollar.
US Dollar Index (DXY) Price and Chart
The DXY’s movements are shaped by a variety of macroeconomic and geopolitical factors, including interest rates, inflation, trade balances, and global risk sentiment. As you can see from the DXY price chart, it has ranged since the beginning of 2023 after a dip in 2022. More recently, it threatened to break higher out of the range before pulling back once again.
Over the past five years, the DXY is up around 10% (as of Jan '25). Over the last 12 months, it has gained around 2.35%.
| Timeframe | Performance |
|---|---|
| 3 Months | +4.34% |
| 6 Months | +1.11% |
| 2024 | +4.30% |
| 1 Year | +2.35 |
Top Currency Weights in the DXY Basket
| Currency | Weight |
|---|---|
| Euro | 57.6% |
| Japanese Yen | 13.60% |
| Great British Bound | 11.90% |
| Canadian Dollar | 9.10% |
| Swedish Krona | 4.20% |
| Swiss Franc | 3.60% |
US Dollar Forecast
The outlook for the US Dollar Index depends on key global and domestic factors:
Bull Argument: For a high-level overview, various analysts argue that the DXY could strengthen further due to ongoing geopolitical risks that drive demand for safe-haven assets. Additionally, if interest rates in the US remain higher relative to other major economies, it could attract foreign investment, supporting the dollar.
Trading Economics states that by the end of the current quarter, the United States Dollar is expected to trade at 105.46, according to the firm's global macro models and analyst expectations. however, looking forward, they estimate it to trade at 107.18 in 12 months time.
Meanwhile, in a June article, Goldman Sachs said the US dollar is likely to stay “stronger for longer.” The investment bank highlighted the “limited prospects for global, macroeconomic divergence and the continued solid growth generated by the US economy.”
Bear Argument: On the downside, the Federal Reserve's potential to pivot towards rate cuts, coupled with improving economic conditions in other regions such as the eurozone, could weaken the dollar. Rising twin deficits (budget and trade) in the US may also exert downward pressure on the index over the long term.
However, it is important to note that the US dollar plays a pivotal role as a safe haven currency and an increase in economic or geopolitical tensions could see the currency strengthen. Meanwhile, analysts at Bank of America recently said they see a risk of outflows from the US dollar and into the euro and emerging market currencies due to November's strong equity performance and weak bond returns. The bank said it is comfortable in tactically fading the dollar rally.
Our View: The DXY remains a critical barometer of the dollar’s global standing. While its near-term trajectory may fluctuate based on monetary policy and economic data, the index’s long-term trends reflect the evolving dynamics of the global economy and the US’s central role within it.
Why Track the US Dollar Index?
Market participants looking to track the performance of the DXY may include:
Forex traders: The DXY provides insight into the dollar’s strength and can guide trading decisions in currency markets.
Investors managing international portfolios: A strong or weak dollar impacts returns on foreign investments and multinational companies’ earnings.
Those seeking a hedge against currency risks: Monitoring the DXY can help assess risks related to dollar exposure in global transactions.
Economic analysts: The DXY serves as a tool for evaluating global economic conditions and the impact of US monetary policy.
However, the DXY may not be as directly relevant for investors focused solely on domestic markets: Unless impacted by dollar-sensitive sectors, such as commodities or exports, the DXY may be less critical to those trading equities with a focus on the US.
