The USD Index: What is it and why is it important

The USD Index is one of the most frequently monitored economic indicators in the world. It influences the valuations of all assets worldwide, and its long history underscores its importance.

Key takeaways:

A stronger dollar (rising DXY) typically weighs on risk assets like stocks and crypto, while a weaker dollar supports rallies in those markets.

The index composition has remained unchanged since 1999, despite major shifts in global trade.

Fed monetary policy, interest-rate expectations, and incoming economic data (especially inflation and employment figures) remain the dominant drivers of dollar strength or weakness, influencing risk-on / risk-off flows across asset classes.

The USD Index characteristics

The USD Index (DXY) is one of the most important economic indicators in the world. It measures the relative strength of the dollar against a basket of currencies. The index increases when the US dollar strengthens against these currencies and decreases when the dollar depreciates.

Composition and weighting of currencies in the DXY basket as of February 2026 (unchanged since 1999):

Euro (EURUSD) – 57.6%

Japanese Yen (USDJPY) – 13.6%

British Pound (GBPUSD) – 11.9%

Canadian Dollar (USDCAD) – 9.1%

Swedish Krona (USDSEK) – 4.2%

Swiss Franc (USDCHF) – 3.6%

The USD Index history

The USD Index (DXY) was created in 1973 after the collapse of the Bretton Woods system, which pegged the US dollar to gold. With the discontinuation of the link between currencies and precious metals, a new system was created in which the dollar played a central role, and the dollar index was set to 100. It reached a record high in the mid-1980s (165) and a low in 2008 (around 70).

The composition of the benchmark basket has not changed since 1999.

The U.S. Dollar: What impacts its value

The value of the USD Index depends primarily on the relative strength of the US economy. Typically, the stronger the economy, the more valuable the currency.

A key variable here is monetary policy. When the market expects interest rates to rise, the currency strengthens (appreciates). When the market expects interest rates to fall, the currency should weaken (depreciate).

Monetary policy is shaped by a range of data flowing from the economy. These data also influence the dollar.

Among these are NFP readings (reflecting the strength of the US labor market) and CPI readings (inflation). When inflation rises, the currency's relative value should decline.

Finally, market data, such as companies' financial results and profit forecasts, are also important and influence future interest rates.

USD value: Impact on various markets

As a global currency, the US dollar directly and indirectly influences asset values worldwide. However, the mechanism of influence differs from sector to sector.

Forex

This is the most obvious connection. Because in the forex market, one currency is always quoted in terms of another (in currency pairs), the dollar's value automatically influences the value of the pair.

For example, for the Eurodollar (EURUSD), as the dollar weakens, the pair's valuation increases (more dollars per euro). The opposite is true for the USD/JPY pair. Since the dollar is first in a pair, as its value declines, the pair declines (fewer yen per dollar).

Crypto

The correlation between the dollar and the value of the cryptocurrency market is usually negative. This means that when the dollar's value increases, the prices of Bitcoin (BTCUSD), Ethereum (ETHUSD), and other altcoins decrease. This happens because, first, they are priced in dollars and, second, market dynamics change. When investors sell cryptocurrencies, they often move into dollars. This means that demand for the USD increases, and therefore its price.

Indices

As with cryptocurrencies, the correlation is negative. During risk-off periods (e.g., recession, geopolitical crisis), investors flee to the dollar as a safe haven, which drives up the DXY while simultaneously dampening gains on Wall Street.

However, during risk-on periods, with loose Fed policy and a weakening dollar (DXY falling), capital flows into equities, which historically leads to a strong inverse correlation: a weak dollar supports higher valuations of stock indices, particularly for technology and growth companies.

Commodities

A rising USD Index = weakening commodity prices, and vice versa.

The main reason is that most commodities (oil, gold, copper, silver, grains, etc.) are priced globally in US dollars. A stronger dollar makes them more expensive for non-US buyers (who need to exchange their currency for more US dollars), reducing demand and lowering prices. A weaker dollar does the opposite, increasing availability and fueling growth.

Conclusion

The dollar index is one of the most important economic indicators. It reflects the relative strength of the US economy and measures the dollar's value against a basket of currencies.

Its valuation influences the prices of all dollar-denominated assets, shapes the relative strength of buyers outside America, and provides insight into the future of US monetary policy, which in turn affects global liquidity and asset valuations.