The dollar index (DXY)
The dollar index (DXY) measures the US dollar against six major currencies in a single number. The euro makes up more than half of the basket. It is often said to move against crypto and gold, but that link is not constant.
What is the dollar index?
DXY is an index of the US dollar's weighted average value against a basket of currencies. Today it is calculated by Intercontinental Exchange (ICE). Its base value was set at 100 in March 1973; a reading above 100 means the dollar is worth more against the basket than it was then.
When the index rises, the dollar is strengthening against the currencies in the basket; when it falls, the dollar is weakening. Its value has varied widely over the decades.
What is in the basket?
The basket holds six currencies, and the weights have not changed since the euro arrived in 1999.
- Euro (EUR): about 57.6%. Most of the index's movement comes from EUR/USD.
- Japanese yen (JPY) about 13.6%, British pound (GBP) about 11.9%.
- Canadian dollar (CAD) about 9.1%, Swedish krona (SEK) about 4.2%, Swiss franc (CHF) about 3.6%.
- Currencies that now carry a large share of US trade, such as the Chinese yuan or the Mexican peso, are not in the basket. That makes DXY a narrow measure of the dollar's overall value.
What moves DXY?
- Rate differentials: US rates rising against other countries, or expected to, often strengthen the dollar. That is why Fed expectations and Treasury yields are watched closely.
- Risk appetite: when fear rises in markets, the dollar is often sought as a safe haven. When risk appetite is high, that demand can fade.
- Other economies: the basket is a relative measure, so events in the euro area or Japan move the index too. The dollar can strengthen without anything changing on the US side.
The inverse link with crypto and gold
A strong dollar is often said to weigh on crypto and gold. It is a tendency; the strength and even the direction of the link change from one period to another.
The common picture
As the dollar strengthens, financial conditions can tighten and assets priced in dollars become dearer for buyers in other currencies. Crypto and gold can come under pressure in these periods.
The reverse picture
As the dollar weakens, looser financial conditions and stronger risk appetite can be read as a supportive backdrop for crypto and gold.
When the link breaks down
In a crisis the dollar and gold can rise together. Crypto can also move on its own news, regardless of the dollar's direction.
What it shows, what it does not prove
What it shows
- The dollar's overall direction against six major currencies
- How changes in rate differentials and risk appetite show up in the dollar
- Whether the macro backdrop for crypto and gold is tightening or easing
What it does not prove
- That the dollar is moving the same way against every currency
- That crypto or gold will fall when DXY rises
- That the past inverse link holds with the same strength today
The MarketLevelMap view
How it relates to zones
DXY can be read like any chart; it has support and resistance zones where it has reacted before. Periods when DXY is testing an important zone can add macro context to moves in crypto.
That context does not move the zones on a crypto chart. Whether a crypto zone holds is judged by reading it as a band and by 1H, 4H or daily closes; DXY only describes the wind in the background.
Often confused with
For general information only. Not investment advice.Last updated: