One of the most important barometers for global currencies is the Dollar Index (DXY), which measures the value of the US Dollar versus a basket of global currencies. The basket of currencies essentially consists of nations that have significant trading relationship with the US and are also hard floating currencies.  The original Dollar Index benchmarked the US Dollar against a basket of 10 currencies viz. UK Pound, Japanese Yen, Canadian Dollar, Swedish Kroner, Swiss Franc, West German Mark, French Francs, Dutch Guilders, Italian Lira and the Belgian Franc. However, post 1999 when the Euro was launched as the common currency of EU members, the last five currencies were subsumed into the Euro. Therefore, the DXY basket currently consists of 6 currencies viz. the Euro, UK Pound, Canadian Dollar, Japanese Yen, Swedish Kroner and Swiss Franc. The Dollar Index measures the strength of the US$ versus this 6-currency basket.

How are these currencies weighted?
Each of these 6 currencies is weighted in the proportion of the breadth and depth of their trading relationship of these countries with the US. The chart below captures the weightage assigned to the 6 currencies in the DXY basket

Plotting the Dollar Index (DXY) over the years

price of gold

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