Currencies & FX
5 min readUpdated Apr 12, 2026DXY
US Dollar Indexdollar indexUSD indexdollar strengthUSDXtrade-weighted dollar
The ICE US Dollar Index, a trade-weighted basket measuring the value of the US dollar against six major currencies (EUR, JPY, GBP, CAD, SEK, CHF) and a key gauge of global USD strength.
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Current Reading10d ago via FRED
118.04Trade-Weighted Dollar
Dollar in neutral range
1W
—
1M
-0.2%
3M
+0.2%
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Current Macro RegimeSTAGFLATION→ DEEPENING
The macro regime is unambiguously STAGFLATION DEEPENING. The hot CPI print (pending event, 24h ago) is not a surprise — it is a CONFIRMATION of the pipeline signals that have been building for weeks: PPI accelerating faster than CPI, Cleveland nowcast at 5.28%, breakevens rising +10bp 1M across the …
Analysis from May 14, 2026
What Is the DXY?
The US Dollar Index (DXY) measures the value of the US 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%). Created in 1973 after the collapse of Bretton Woods, with a base value of 100, it is the most widely watched gauge of broad dollar strength in global markets.
The DXY matters far beyond currency trading. As the world's reserve currency, the dollar's strength or weakness ripples through every asset class: commodities, emerging markets, US corporate earnings, global liquidity conditions, and central bank policy worldwide. Understanding DXY dynamics is essential for any macro trader, it is the connective tissue that links monetary policy in Washington to bond markets in Tokyo, commodity prices in London, and equity markets in Shanghai.
The DXY Basket
| Currency | Weight | Why This Weight |
|---|---|---|
| Euro (EUR) | 57.6% | Combined weight of former Deutsche Mark, French Franc, Italian Lira, etc. |
| Japanese Yen (JPY) | 13.6% | Japan was the #2 economy when DXY was created |
| British Pound (GBP) | 11.9% | UK was a major trading partner |
| Canadian Dollar (CAD) | 9.1% | Largest US border trading partner |
| Swedish Krona (SEK) | 4.2% | Historical trading importance |
| Swiss Franc (CHF) | 3.6% | Safe-haven and financial center currency |
The Missing Currencies
The DXY's biggest limitation: it excludes China, India, Mexico, South Korea, and Brazil, collectively representing a larger share of US trade than the six included currencies. The DXY is essentially a "dollar vs developed-world currencies" index, with a massive euro bias.
For a more comprehensive view:
- Fed Broad Trade-Weighted Dollar (DTWEXBGS): 26 currencies, trade-weighted
- Bloomberg Dollar Spot Index (BBDXY): 10 currencies, more modern weighting
- Real Effective Exchange Rate (REER): Adjusted for inflation differentials
DXY History: The Major Regimes
| Period | DXY Range | Regime | Key Driver |
|---|---|---|---|
| 1973-1978 | 100 → 82 | Weak dollar | Post-Bretton Woods uncertainty, oil shocks, inflation |
| 1978-1985 | 82 → 165 | Super strong dollar | Volcker rate hikes (20%+ fed funds), capital inflows |
| 1985-1992 | 165 → 78 | Plaza Accord weakness | G5 coordinated intervention to weaken dollar |
| 1995-2002 | 80 → 120 | Strong dollar | Dot-com boom, US growth outperformance |
| 2002-2008 | 120 → 71 | Weak dollar | Fed easing post-dot-com, twin deficits, commodity supercycle |
| 2008-2011 | 71 → 89 → 73 | Volatile | GFC safe-haven (up), then QE (down) |
| 2011-2016 | 73 → 103 | Strengthening | Taper tantrum, ECB negative rates, diverging policy |
| 2017-2021 | 103 → 89 | Mild weakness | COVID stimulus, zero rates, global recovery |
| 2022 | 95 → 114 | Wrecking ball | Fastest Fed hiking cycle in 40 years; 114 was 20-year high |
| 2023-2025 | 114 → 100-108 | Moderating | Rate peak, de-dollarization concerns |
Cross-Asset Impact: The Dollar as Global Macro Lever
The DXY Transmission Mechanism
| Asset Class | DXY Rises 10% | DXY Falls 10% | Correlation |
|---|---|---|---|
| Gold | Falls 5-15% | Rises 5-15% | -0.4 to -0.6 |
| Crude Oil | Falls 5-10% | Rises 5-10% | -0.3 to -0.5 |
| Copper | Falls 5-12% | Rises 5-12% | -0.3 to -0.5 |
| S&P 500 EPS | Falls 3-5% (translation) | Rises 3-5% | -0.2 to -0.3 |
| EM Equities (EEM) | Falls 10-20% | Rises 10-20% | -0.5 to -0.7 |
| EM Currencies | Weaken 5-15% | Strengthen 5-15% | -0.6 to -0.8 |
| US Treasuries | Mixed (capital inflows vs inflation) | Mixed | Low correlation |
| Bitcoin | Falls 5-15% | Rises 5-15% | -0.3 to -0.5 (since 2020) |
The "Dollar Smile" Theory
Economist Stephen Jen developed the Dollar Smile framework that explains the DXY's non-linear behavior:
- Left side of smile (dollar strong): Global risk-off → safe-haven dollar demand
- Bottom of smile (dollar weak): Goldilocks growth → capital flows to higher-yielding non-US assets
- Right side of smile (dollar strong): US outperformance → capital attracted by superior US growth and yields
The dollar is weakest when the global economy is growing moderately and the US is not dramatically outperforming, the "middle ground" where investors venture into EM, commodities, and foreign equities.
Trading the DXY
The Primary Instruments
| Instrument | Ticker | Liquidity | Best For |
|---|---|---|---|
| ICE DX Futures | DXY | Very high | Direct macro DXY trading |
| EUR/USD (inverse proxy) | EUR/USD | Highest in world ($2T+/day) | Most liquid dollar trade |
| UUP / UDN ETFs | UUP, UDN | Moderate | Equity-account dollar exposure |
| Gold (inverse proxy) | GLD, GC | Very high | Dollar weakness + inflation hedge |
| EM currency ETFs | CEW | Low | Broad EM vs dollar |
DXY Trading Playbook
| Regime | DXY Trade | Cross-Asset Trade |
|---|---|---|
| Fed hiking, DXY rising | Long DXY/UUP | Short gold, short EM, short commodities |
| Fed peak/pivot | Short DXY/Long UDN | Long gold, long EM, long commodities |
| Global risk-off | Long DXY (safe haven) | Long Treasuries, short risk assets |
| US recession | Short DXY (Fed will cut) | Long gold, long duration |
| De-dollarization catalyst | Short DXY | Long gold, long BTC, long commodity currencies |
What to Watch
- Fed vs ECB/BOJ rate differential, the most important single driver; when the spread widens in favor of the US, DXY rises
- US vs global growth data, PMIs, jobs data, GDP; when US outperforms, DXY strengthens
- VIX / risk sentiment, DXY tends to surge during risk-off events (safe-haven demand)
- Treasury foreign holdings data (TIC), monthly data on foreign purchases of US assets; declining foreign demand = DXY headwind
- Central bank gold purchases, sustained buying signals structural de-dollarization, a long-term DXY headwind
Recent Readings
| Date | Value | Change |
|---|---|---|
| May 8, 2026 | 118.04 | +0.0% |
| May 7, 2026 | 118.01 | -0.1% |
| May 6, 2026 | 118.1 | -0.4% |
| May 5, 2026 | 118.62 | -0.2% |
| May 4, 2026 | 118.83 | +0.4% |
| May 1, 2026 | 118.39 | -0.2% |
| Apr 30, 2026 | 118.67 | -0.4% |
| Apr 29, 2026 | 119.1 | +0.3% |
| Apr 28, 2026 | 118.77 | +0.2% |
| Apr 27, 2026 | 118.55 | — |
Related Analysis
Frequently Asked Questions
▶What currencies are in the DXY and why is it euro-heavy?
The DXY basket contains six currencies with the following weights: Euro (EUR) 57.6%, Japanese Yen (JPY) 13.6%, British Pound (GBP) 11.9%, Canadian Dollar (CAD) 9.1%, Swedish Krona (SEK) 4.2%, and Swiss Franc (CHF) 3.6%. The euro's 57.6% weight means the DXY is essentially a "dollar vs euro" index with minor adjustments from the other five currencies. This is an artifact of history: the DXY was created in 1973 with the original Bretton Woods trading partners. When the euro replaced the Deutsche Mark, French Franc, Italian Lira, Dutch Guilder, and Belgian Franc in 1999, their combined weights were rolled into the euro — creating the massive EUR dominance. The DXY has never been rebalanced to reflect the modern global economy. This is its biggest limitation: the index excludes China (the world's second-largest economy and largest US trading partner), India, South Korea, Mexico, and Brazil — all major dollar counterparts. For a more representative view, the Federal Reserve publishes three alternative indices: the Broad Trade-Weighted Dollar Index (DTWEXBGS), which includes 26 currencies weighted by trade volume; the Advanced Foreign Economies (AFE) index; and the Emerging Market Economies (EME) index. Despite its limitations, the DXY remains the most-traded dollar index because of its liquidity in futures markets (ICE DX contract) and its decades of historical data.
▶How does the DXY affect other asset classes?
The DXY is one of the most powerful cross-asset signals in macro because the dollar is the global reserve currency and the unit of account for most international trade and finance. The transmission channels: (1) Commodities: nearly all major commodities are priced in dollars. A 10% DXY rally typically corresponds to a 5-15% decline in commodity prices (oil, gold, copper, agricultural). The DXY-gold correlation averages approximately -0.4 to -0.6. (2) Emerging markets: approximately $4 trillion of EM sovereign and corporate debt is denominated in US dollars. When the DXY strengthens, the real burden of this debt increases (EM borrowers earn local currency but owe dollars), triggering capital outflows, currency depreciation, and potential sovereign stress. The 2022 DXY surge to 114 caused the Turkish lira, Argentine peso, and Egyptian pound to lose 30-60% of their value. (3) US corporate earnings: approximately 40% of S&P 500 revenue comes from overseas. A strong dollar reduces the dollar value of foreign earnings when translated back — a 10% DXY increase typically reduces S&P 500 EPS by approximately 3-5%. (4) Global liquidity: dollar strength tightens financial conditions worldwide by raising the cost of dollar funding for non-US borrowers, reducing cross-border capital flows, and forcing EM central banks to raise rates to defend their currencies. A rising DXY is effectively a tightening of global monetary policy that no central bank voted for.
▶What drives the DXY higher or lower?
The DXY is driven by four primary factors: (1) Interest rate differentials — the single most important driver. When US rates are higher than rates in the eurozone, Japan, and other DXY-component countries, capital flows into dollar assets for the yield advantage, strengthening the dollar. The 2022 DXY surge from 95 to 114 was almost entirely driven by the Fed hiking from 0% to 5.5% while the ECB was slower and the BOJ held at -0.1%. (2) Growth differentials — when the US economy is outperforming Europe and Japan, the dollar strengthens because US assets are more attractive (better earnings growth, higher real yields). (3) Risk appetite (safe-haven flows) — during global crises, capital flows to the dollar as the world's reserve currency, regardless of US fundamentals. The DXY surged in 2008 (GFC), 2020 (COVID), and during European crises. This "dollar smile" theory (Michael Rosenberg, then Stephen Jen) predicts dollar strength during both extreme risk-off (safe-haven) AND extreme US outperformance, with dollar weakness only in the middle ground. (4) Capital flows and trade — the US current account deficit ($800+ billion annually) creates structural selling pressure on the dollar (Americans buying foreign goods must sell dollars). This is offset by the capital account surplus (foreigners buying US assets). When foreign appetite for US assets declines (de-dollarization, reduced Treasury demand), the dollar weakens.
▶What are the key DXY levels that traders watch?
The DXY has well-defined technical levels that correspond to distinct macro regimes: Below 90: Structurally weak dollar — last seen in 2008 (GFC bottoms, $71) and briefly in 2020 ($89). This level signals massive dollar liquidity expansion, typically associated with Fed easing, negative real yields, and commodity strength. At these levels, gold tends to be in a strong bull market and EM assets outperform. 90-100: Neutral to mildly weak dollar — the "goldilocks" range for global assets. Commodities perform well, EM is not under stress, and US multinationals benefit from translation effects. Most of 2017-2021 was in this range. 100-105: Mildly strong dollar — beginning to create headwinds for commodities and EM. US earnings translation impact becomes noticeable. 105-110: Strong dollar — significant stress on EM currencies and commodity markets. Historically, sustained readings above 105 have been associated with EM crises or near-crises. Above 110: Wrecking ball — the 2022 surge to 114 caused the UK pension crisis, forced EM central banks into emergency rate hikes, and crushed commodity currencies. The Plaza Accord in 1985 was triggered by DXY reaching 165, reflecting extreme dollar overvaluation that was deemed unsustainable by G5 finance ministers. Current structural supports: the US offers the highest real yields among developed markets, the deepest capital markets, and the strongest economy — all of which support dollar demand. Structural risks: fiscal sustainability concerns (debt/GDP >120%), de-dollarization trends, and potential Fed rate cuts could weaken the dollar.
▶How do I trade the DXY and what instruments are available?
The DXY can be traded directly and indirectly through several instruments: (1) ICE DX futures — the most direct DXY instrument. Trades on ICE Futures US with tickers DXH (March), DXM (June), DXU (September), DXZ (December). Contract value is $1,000 × DXY level (~$103,000 at current levels). Margin requirements are approximately $2,000-3,000, providing significant leverage. Popular with macro traders and FX desks. (2) DXY options — available on ICE; allows defined-risk DXY views. (3) UUP/UDN ETFs — Invesco DB US Dollar Index Bullish Fund (UUP) goes long the DXY basket; UDN goes short. These are the simplest way for equity-account traders to take DXY positions, but they suffer from roll costs (they hold currency futures). (4) EUR/USD — because the euro is 57.6% of the DXY, EUR/USD is the highest-correlation single pair. EUR/USD has a correlation of approximately -0.95 with DXY. Trading EUR/USD is essentially trading the DXY with more liquidity (EUR/USD is the most-traded currency pair in the world, with $2+ trillion daily volume). (5) Cross-asset DXY trades — instead of trading the DXY directly, express dollar views through correlated assets: long gold for dollar weakness, short EM currencies (via FX or EM ETFs) for dollar strength, long commodity currencies (AUD, CAD, NOK) for dollar weakness. These provide additional carry or yield that pure DXY doesn't. (6) Dollar smile positioning — buy dollars in extreme risk-off (safe-haven) and sell dollars during gradual risk-on (global growth).
How Atlas Tracks This
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Atlas tracks the trade-weighted dollar index via FRED and includes it in the macro state assessment and FX-sensitive asset views.
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