What is the U.S. Dollar Index?

Asher Rogovy, chief investment officer at Magnifina, says the USDX also has some shortcomings that investors should understand.

Full quote provided:

1) The dollar index is meant to be used as a measure of the value for the dollar as a currency. Because currency trades require two currencies, it is not directly tradable, but some derivative contracts may use it as an underlying instrument. The weightings of the currencies used to calculate the index were based on United States’ biggest trading partners in the 1970s. It does not include China, emerging markets, or commodity currencies. Therefore, the index may be less useful as an economic measure than in previous decades. 2) When a currency is strong, domestic businesses generate less profit from their exports. With a higher dollar index, companies heavily reliant on foreign sales tend to report lower earnings. Lower earnings usually means lower stock prices. But the dollar index might not tell the whole story because it is heavily weighted against European currencies and the Japanese Yen.

Share This Story