Just as Dow Jones Industrial Average reflects the general state of American stock market, US Dollar Index (USDXsup>®) reflects the general assessment of US Dollar. USDX does it through exchange rates averaging of US Dollar and six most tradable global currencies.
USDX = 50.14348112 × EURUSD−0.576 × USDJPY0.136 × GBPUSD−0.119 × USDCAD0.091 × USDSEK0.042 × USDCHF0.036
Those 20 countries (15 eurozone countries and five other countries, whose currencies are represented in USDX) make up the basis of global trade with the USA, have highly developed currency markets with the quotes which are independently determined by market participants. Besides, many currencies not included into USDX, are traded in close correlation with the currencies included in USDX. USDX value is calculated 24-hours a day, seven days a week.
Currencies and weights used in USDX calculation match the currencies and weights used in calculation of trade weighted US Dollar index by US Fed.
As USDX is based on indicative values of quotes, it can vary depending on quote source used.
USDX is calculated as geometric progression weighted average of six currencies rates against US Dollar in comparison with March, 1973. USDX measures the US Dollar value reduced to 100.00. Quote value 105.50 means that US Dollar value in relation to currency basket grew 5.50% from March, 1973.
March, 1973 was chosen as a zero point due to its significance in Forex market history. Those times the leading trade nations allowed their currencies to be quoted freely against each other. Such agreement was made in Smithsonian Institution in Washington, and is considered to be a victory of free market theorists. Smithsonian agreement replaced the collapsed fixed rate regime launched approximately 25 years earlier in Bretton Woods, New Hampshire.
Current rate of USDX reflects the average dollar value against this base period of 1973. Since that time, Dollar Index has reached the peak 165 and the low 76. The volatility of such instrument by amplitude and variability can be compared with stock index futures.
