US Dollar Index: Measuring the US Currency’s Global Strength
Posted by Edward Dy on July 18th, 2008
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Photo Credit: kevindooley
You’re probably familiar with all the available indices, such as the Dow Jones Industrial Average (DJIA), if you have traded stocks. In the same manner and for a similar reason, the US dollar does have an index too. Currency traders have the US Dollar Index (USDX).
The US Dollar Index has as its essential component, a geometric weighted average of a basket of foreign currencies versus the US dollar.
Photo Credit: ArchiM
The USDX works in a very similar way as stock indices in the sense that it provides a general indication of the basket of securities or major world currencies in the case of forex trading.
These major world currencies we’re talking about are:
- Euro (EUR)
- Yen (JPY
- Cable (GBP)
- Loonie (CAD)
- Kronas (SEK)
- Francs (CHF).
The USDX is composed of 6 currencies that involve 17 countries, since there are 12 member countries of the European Union with the addition of Japan, Canada, Great Britain, Switzerland and Sweden.
Although the 17 countries are just a small part of the world, there are, however, a lot of other currencies that very closely follow the US Dollar index. For these reasons, the USDX therefore is an excellent tool for measuring the global strength of the US dollar.
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