The U.S. Dollar Index (DXY) is a key benchmark that measures the strength of the U.S. dollar against a basket of six major currencies: the euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%), and Swiss franc (3.6%). It is calculated as a weighted geometric average of the exchange rates of these currencies relative to the U.S. dollar.
DXY was introduced in 1973 following the collapse of the Bretton Woods system and the transition to floating exchange rates. Since then, it has become a vital reference point for central banks, institutional investors, and retail traders around the world. An increase in the index reflects a strengthening dollar, while a decline signals weakening. Thanks to its structure and consistent methodology, DXY remains a reliable indicator of market sentiment and global demand for the dollar – particularly during periods of economic instability and rising geopolitical risks.
The base value of the index was set at 100.00 in March 1973. Since then, DXY has experienced both sharp rallies and significant declines. In 1985, during a period of aggressive monetary tightening and high interest rates in the U.S., it reached its historical high of around 164. Its lowest level – just under 71 – was recorded in 2008 during the height of the global financial crisis.
As of August 2025, the index is trading in the range of 97–98 points – near its lowest levels in the past three years. This decline in the dollar is driven by the Federal Reserve’s dovish tone as well as increasing trade and political tensions. Earlier this year, President Trump launched a new tariff initiative under the slogan “Liberation Day,” imposing duties on imports from the European Union, the UK, Japan, Switzerland, India, and China. Unlike in 2018, the dollar failed to strengthen and instead began to lose ground. According to analysts at XFINE, this was due to a reassessment of risk: investors grew sceptical of the stability of U.S. economic policy and began reducing their exposure to dollar-denominated assets.
Additional downward pressure came from weaker-than-expected labour market data. Job creation in May and June fell short of forecasts, fuelling speculation about a rate cut this autumn. At the same time, corporate earnings and moderate inflation have so far prevented a more dramatic collapse in demand for the dollar.
Major financial institutions have revised their forecasts. J.P. Morgan notes that while tariff policy can sometimes trigger short-term demand for the dollar as a safe haven, in the current environment it is viewed more as a source of weakness. Goldman Sachs expects the index to remain in the 96-97 range through year-end. Barclays sees a possible temporary spike above 100 if inflation surges, though its baseline scenario keeps DXY below that level. Bloomberg Economics and Trading Economics forecast a gradual decline to the 94-95 range by 2026, citing fiscal risks and potential deterioration in macroeconomic indicators.
For traders, DXY is more than just a macro indicator – it is a practical tool. It is widely used in analysing EUR/USD, where the euro accounts for nearly 58% of the index. A rising DXY typically corresponds with a falling EUR/USD and vice versa. However, it is important to consider the index’s structure: for example, if the dollar is strengthening only against the yen and krona while remaining flat against the euro, the impact on EUR/USD may be limited.
DXY is also helpful when trading USD/JPY and various cross pairs. For instance, if DXY is rising alongside a strengthening yen, the resulting signals may be contradictory and require additional caution. In EUR/GBP trading, the index can provide insight into broader dollar sentiment, which in turn influences both legs of the cross.
XFINE analysts emphasise that DXY can be used as a filter for trade entries, a confirmation tool for trend direction, and a way to assess the macro backdrop. This is especially relevant in periods of high uncertainty – such as the current environment, where the Fed’s monetary stance and the White House’s trade initiatives are pulling the currency market in different directions.
In summary, the DXY index remains a crucial reference not only for gauging global demand for the dollar, but also for building informed trading strategies. Understanding its current phase and internal composition allows traders to adapt more effectively to changing market conditions and improve the precision of their decisions.
