The U.S. Dollar Index (USDX) is a measure of the value of the U.S. dollar relative to a basket of six major currencies: the euro, the Japanese yen, the British pound, the Canadian dollar, the Swiss franc and the Swedish krona. The USDX was created by the U.S. Federal Reserve in 1973 and is now maintained by ICE Data Indices, a subsidiary of the Intercontinental Exchange (ICE).
The USDX is widely used as a benchmark for the international value of the U.S. dollar and the world’s most widely-recognized, publicly-traded currency index. By using the USDX, traders can take advantage of moves in the value of the U.S. dollar relative to a basket of world currencies or can hedge their portfolio of assets against the risk of a move in the U.S. dollar.
The USDX is calculated as a weighted geometric mean of the U.S. dollar’s value relative to the other currencies in the basket. The weights are based on the trade volume between the U.S. and each country in the basket. The euro has the highest weight at 57.6%, followed by the yen at 13.6%, the pound at 11.9%, the Canadian dollar at 9.1%, the Swiss franc at 3.6% and the Swedish krona at 4.2%.
The USDX is quoted as an index number with a base value of 100 as of March 1973, which means that a USDX value of 100 indicates that the U.S. dollar has not changed in value since then. A USDX value above 100 means that the U.S. dollar has appreciated against the basket of currencies, while a USDX value below 100 means that the U.S. dollar has depreciated against the basket of currencies.
On April 28 and 29, 2023, the USDX fell by 0.3% to 101.56, dropping for a second day in a row . This means that the U.S. dollar weakened against its major trading partners’ currencies over these two days.
There are several factors that can affect the value of the USDX and cause it to rise or fall. Some of these factors include:
- The supply and demand of the U.S. dollar and the other currencies in the basket
- The interest rate differential between the U.S. and the other countries in the basket
- The inflation rate differential between the U.S. and the other countries in the basket
- The economic growth and performance of the U.S. and the other countries in the basket
- The political stability and risk of the U.S. and the other countries in the basket
- The market sentiment and expectations of future movements in the U.S. dollar and the other currencies in the basket
In this case, some of the possible reasons for why the USDX fell for two consecutive days are:
The release of key U.S. growth data on April 29, which showed that the U.S. economy grew by an annualized rate of 2% in Q1 2023, below market expectations of 2.5% . This indicated that the U.S. economic recovery was slowing down amid rising interest rates, banking contagion risks and a worsening pandemic situation. The dovish stance of the Bank of Japan (BOJ) on April 28, which maintained its ultra-loose monetary policy and pledged to keep interest rates low until inflation reaches its 2% target . This boosted the Japanese yen against the U.S. dollar as investors sought safety in Japan’s low-risk assets. The announcement of a major overhaul of Australia’s health system by Prime Minister Anthony Albanese on April 28, which included increased funding for public hospitals, mental health services and aged care . This improved the outlook for Australia’s economic growth and social welfare, strengthening the Australian dollar against the U.S. dollar.
