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DXY (US Dollar Index)

By Anoop Agrawal


Updated

Your guide to DXY trading

What is the DXY Index and why is it important to traders?

The DXY refers to the US Dollar Index, which is the global benchmark for the value of the US dollar measured against a basket of foreign currencies.

The DXY Dollar Index was created by the US Federal Reserve in 1973, after the Bretton Woods system of payments based on the dollar came to an end. Countries decided to let their currencies float freely rather than being pegged at fixed rates to the US dollar, after the US government suspended the gold standard. The system established rules for trading between the US, Canada, Western Europe, Australia and Japan after the Second World War.

The DXY was primarily developed as a reference for US external trade, and the ability to trade the Dollar Index futures was introduced later, in 1985, with options trading following in 1986. Trading on the index is maintained by the Intercontinental Exchange (ICE).

DXY trading allows investors to gain exposure to the foreign exchange markets based on the US dollar, the global reserve currency. The American dollar is highly liquid and responds to global market trends as well as what is happening in the US economy, providing great opportunities for traders. Moreover, investors can use the US Dollar Index to hedge their portfolios against the risk of a move in the value of the US dollar.

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DXY tradingDollar Index trading hours

As a global currency benchmark, DXY trading hours run 21 hours a day Sunday – Friday on the ICE platform, with the hours depending on the time zone.

DXY trading hours

If you choose to trade DXY CFDs with Capital.com, you can trade the index between 00:00-22:00 (UTC) on Monday, 01:01-22:00 on Tuesday to Friday and 23:01-00:00 on Sunday.

How is the DXY Index calculated?

The US Dollar Index is calculated as a geometrical average based on its six constituent currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc. It is a geometric average, rather than an arithmetical average, because each currency is multiplied by its respective percentage weight. The DXY index value can be quoted to three decimal places.

The weightage assigned to the 6 currencies in the DXY basket

Prior to the introduction of the euro in 1999, the US Dollar Index included the West German mark, the French franc, the Italian lira, the Dutch guilder and the Belgian franc. The only time the components of the index have been changed since 1973 was when these currencies were replaced by the euro.

The value of the DXY Index is calculated in real-time approximately every 15 seconds based on spot prices of the constituent currencies. The calculation takes the midpoint prices between the bid and offer for each currency. The prices for the DXY futures contracts are set by the market and reflect differentials in interest rates between the US dollar and the component currencies.

How to trade DXY CFDs

Dollar Index trading is a great way for investors to gain exposure to the US dollar and take a position on the US economy and/or the global market. By trading the US Dollar Index rather than any one particular currency pair, investors can spread the risk inherent in trading foreign exchange markets, which are highly volatile, and take a position on broader macroeconomic trends rather than factors specific to one country.

In addition to futures and options contracts, one of the easiest and most popular ways to trade the DXY is with contracts for difference, or CFDs. A CFD is a type of contract, typically between a broker and a trader, where one party agrees to pay the other the difference in the value of an asset, between the opening and closing of the trade. Therefore, when you trade DXY using CFDs, you speculate on the direction of the underlying asset’s prices without actually owning it.

Trade DXY US Dollar Index - DXY CFD

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Using CFDs for DXY trading allows you to trade the index in both directions; you can hold a long or short position, depending on whether you expect the price of an asset to rise or fall. CFDs give you the opportunity to profit from price movements in either direction – not only when the value goes up.

US100

19,751.00 Price
-0.370% 1D Chg, %
Long position overnight fee -0.0263%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 7.0

BTC/USD

63,909.20 Price
-1.080% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

Gold

2,445.30 Price
-0.550% 1D Chg, %
Long position overnight fee -0.0197%
Short position overnight fee 0.0115%
Overnight fee time 21:00 (UTC)
Spread 0.29

ETH/USD

3,421.70 Price
-0.010% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

Why trade DXY CFDs with Capital.com

Advanced AI technology at its core: a Facebook-like news feed provides users with personalised and unique content depending on their preferences. If a trader makes decisions based on biases, the innovative SmartFeed offers a range of materials to put them back on the right track. The neural network analyses in-app behaviour and recommends videos and articles to help polish your investment strategy. This helps to refine your approach when trading the DXY Index.

Trading on margin: providing trading on margin (up to 20:1 for major indices), with the help of CFDs, Capital.com gives you access to the DXY Index even with a limited amount of funds in your account.

Trading the difference: when trading CFDs on the DXY Index, you do not buy the underlying asset itself, meaning you are not tied to it. You only speculate on the rise or fall of its share price. CFD trading is no different from traditional trading in terms of its associated strategies. A CFD investor can go short or long, set stop and limit losses and apply trading scenarios that align with their objectives. So whether your view is positive or negative, you can trade the index in both directions.

All-round trading analysis: the browser-based platform allows traders to shape their own market analysis and forecasts with sleek technical indicators. Capital.com provides live market updates and various chart formats, available on desktop, iOS and Android.

Focus on safety: Captal.com puts a special emphasis on safety. Licensed by the FCA, CySEC and NBRB, it complies with all regulations and ensures that its clients’ data security comes first. The company allows to withdraw money 24/7 and keeps traders’ funds across segregated bank accounts.

History of the DXY Index

DXY – Historical Chart

As an index, the DXY had a starting value of 100. US Dollar Index historical data shows that the record high of 164.72 was reached in February 1985, while the record low of 70.70 was hit in March 2008. A value above 100 reflects a stronger US dollar and a value below 100 indicates a weaker dollar.

DXY historical data going back to the inception of futures trading in 1985 shows that the index traded down between 100 and 80 until the mid-1990s, reflecting the fact that there was a recession in the US and other Western economies in the early 1990s. As the economies began to recover and expand, the index traded higher to reach 120.28 by early 2002.

A DXY graph shows that the index fell steadily until it bottomed out in 2008, when the global financial crisis prompted a flight to safe-haven financial assets like the global reserve currency. The index climbed from the record low of 70.70 in March 2008 prior to the crisis to 88.58 by February 2009. It fell back to the 74 level by 2011, but has since moved higher.

The US Dollar Index reached 102.75 in March 2020, the first time it has moved above 100 since 2017, as the economic crisis prompted by the Covid-19 pandemic again encouraged investors to flee to safety.

What influences the value of the DXY Index?

The value of the DXY is driven by demand and supply of the US dollar, as well as the component currencies in the index. Currency demand is affected by monetary and trade policy as well as economic growth, inflation, geopolitical events and broad financial market sentiment.

As a stronger currency can reduce demand for exports to other countries that pay for the goods with relatively weaker currencies, some governments pursue policies to keep down their nation’s currency value. Conversely, countries that import heavily favour a stronger currency to reduce the foreign exchange cost of paying for those imports.

A monetary policy designed to stimulate an economy drives currency values, as for example, a country reducing interest rates or increasing money supply also reduces the attractiveness of its currency for foreign investors. The value of the US Dollar Index fell in 2020 after the initial flight to safety, as the US Federal Reserve policy to reduce interest rates to record lows and stimulate investment reduced the value of the dollar.

FAQ section

Will the constituent currencies of the DXY change?

There is some debate in the currency markets that the US Dollar Index should be reformulated to include currencies from emerging markets that have become larger US trading partners, such as China and Mexico.

How liquid is the DXY market?

The liquidity on the futures contract for the US Dollar Index comes from the spot currency market, which ICE estimates has a daily turnover of more than $2trn. There is a market maker program that helps to ensure continuous liquidity throughout the day in electronic trading.

Markets in this article

DXY
US Dollar Index
103.810 USD
0.485 +0.470%

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