All About the US Dollar Index
Written in 2012. The US Dollar Index measures the value of the US dollar compared to six other major currencies. As the dollar index goes higher, a dollar will buy more goods and services and it will take more foreign currency to buy US goods and services. Wheat prices are much more sensitive to changes in the dollar index value than corn and soybeans.
The US Dollar Index was launched in March 1973 when the world’s largest economic nations met in Washington, D.C. About twelve of them agreed to allow their currencies to float freely against each other (market forces dictate relative value). The start of the index is also known as the “base period” and the US Dollar Index was set at a base value of 100.
The US Dollar Index formula had to be changed once to account for the introduction of the Euro in 2000, but the current factor and weights used in the US Dollar Index formula are not intended to be adjusted. The Euro replaced a variety of currencies, most notably the German Marc, French Franc, Italian Lira as well as the currencies of Holland, Belgium, Luxembourg, and a few others.
Since 2000, the US Dollar Index includes the exchange rates of the following six currencies: euro (EUR), Japanese yen (JPY), Pound sterling (GBP), Canadian dollar (CAN), Swedish krona (SEK), and Swiss franc (CHF). The formula to compute the US Dollar Index is:
Euro 0.576; Yen 0.136; British Pound 0.119; Canadian Dollar 0.091; Swedish Krona 0.042; and Swiss Franc 0.036.
Eight countries will soon join the 17 countries already (as of 2012) using the Euro when they become full members of the EU. The seventeen countries using the Euro now are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.