The U.S. dollar index (USDX) is a market index that tracks the value of the U.S. dollar relative to a group of widely traded currencies. The currencies were selected based on their significance and include the euro, the pound, the yen, the Canadian dollar, the Swiss franc and the Swedish krona. The U.S. dollar index can be traded through futures, options, exchange-traded funds and so on.
The U.S. dollar index was created in 1973 with a base weighting of 100, meaning that an increase to 150 would mean that the U.S. dollar has appreciated by 50% relative to the group of currencies and a reading of 75 would mean the dollar has fallen 25% against the group. The dollar index acts as a lagging indicator since it draws its data from the price action in the forex market. That said, the USDX can be useful in that it acts as a snapshot that shows broad strengthening/weakening in the USD which may not be apparent if a trader is focussing in on a single currency pairing with the USD.
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