DXY vs. the Trade-Weighted Dollar Index

More than half of DXY, the dollar index quoted in most market commentary, is the euro: the euro and the old currencies it replaced make up 57.6% of the basket. Mexico, China, South Korea and Brazil aren't in it at all.

Watch it play outThe euro alone is more than half of DXY

DXY, the dollar index quoted in most market commentary, measures the dollar against a basket of six currencies.

Fill in the euro, plus the old currencies it replaced: 57.6% of the basket.

Split them apart. The yen, pound, Canadian dollar, krona and franc share the other 42.4%.

And Mexico, China, South Korea and Brazil aren't in the basket at all.

Replay

So the two indexes answer different questions. Use DXY when you care about the market benchmark traders quote and trade. Use the Federal Reserve's broad dollar index when you care about U.S. trade, imported inflation, or a company that sells in countries DXY leaves out. The worked example below shows a company taking the same revenue hit twice, once with DXY jumping and once with DXY not moving at all.

Watch it play outDXY sees only the euro slice of this company's revenue

Take a hypothetical U.S. company and every $100 of its revenue, one dot per dollar.

Split it by where it's earned: 35% in Europe, 20% in Mexico, 15% in China and the rest at home.

DXY sees the European slice clearly: the euro is more than half its basket.

It misses the peso and renminbi entirely. If both fell 10%, revenue would drop 3.5% and DXY would show nothing.

Replay

The short version

• DXY tracks the dollar against six currencies: the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.
• Its basket is fixed and rests on 1973 trading relationships. The Fed's broad index reweights as U.S. trade patterns change.
• A company with 20% of revenue in Mexico and 15% in China has exposure DXY can't see. The broad index covers it better, but neither matches the company's own mix.

Check the claimThree claims to test as you read

ClaimDXY is the same thing as "the dollar."Tap to checkMythIt's one index against six currencies, with more than half its weight in the euro.Flip backClaimIf DXY doesn't move, a company took no currency hit.Tap to checkMythCurrencies DXY leaves out, like the peso and renminbi, can cut revenue while DXY stays silent.Flip backClaimNominal and real dollar indexes tell the same story.Tap to checkMythA real index also adjusts for inflation differences, so it tracks competitiveness; a nominal one doesn't.Flip back

The two indexes side by side

ICE, which publishes DXY, calculates it as a geometric average of the six currencies, a weighted average built by multiplying rather than adding. See the ICE U.S. Dollar Index methodology and the USDX contract overview.

The Fed takes a trade-weighted approach: each currency counts in proportion to how much the U.S. trades with that country. The Fed built the broad index to estimate how dollar moves affect U.S. international trade, and splits it into broad, advanced-foreign-economy and emerging-market-economy versions. See the Fed's index-construction note and the current H.10 index page.

Why they can disagree

Because the euro and yen carry so much weight in a six-currency basket, DXY can jump when either one falls. That jump may tell you little about the dollar against the Mexican peso, the Chinese renminbi or the Korean won.

DXY hears the euro and yen, not the peso or renminbi

1. Euro or yen falls to DXY jumps
2. Peso, renminbi or won falls to DXY doesn't see it
3. Euro or yen falls to Broad index registers both (At current trade weights)
4. Peso, renminbi or won falls to Broad index registers both (At current trade weights)

The broad index can move differently because it covers more economies and reflects current trade. Neither index is "correct." Each is a measuring tool, and the right one depends on the exposure you're measuring.

A worked example: one company, two indexes

Imagine a U.S. company that earns revenue in four places:

DXY sees the European slice clearly and misses the peso and renminbi entirely. The broad index covers those trade relationships more completely, but its weights come from national trade data, not this company's sales.

DXY sees only the 35% of revenue earned in euros

• 35%Europe (euro, in DXY)
• 20%Mexico (peso)
• 15%China (renminbi)
• 30%United States (no currency risk)

Run two currency shocks through it

Hypothetical example: take every $100 of this company's revenue and assume sales in local currency don't change. In scenario A, the euro falls 10% against the dollar. In scenario B, the euro holds steady and the peso and renminbi each fall 10%.

Make a guess

35% of this company's revenue is in euros. If the euro falls 10% against the dollar, how much does total reported revenue fall?

Tap your guess

0–2%Your guess2–5%Your guess5–10%Your guess10% or moreYour guess

0123456789.0123456789%Actual

Spot on.Close, a little low.Close, a little high.Way off, too low.Way off, too high. It was 3.5%.

The $35 European slice becomes $31.50, and the other $65 doesn't move.

Same company, same 3.5% hit to reported revenue. In one case the headline dollar index flags it loudly; in the other it stays silent. The broad index would register both, at trade weights rather than this company's weights.

Same revenue hit, different DXY signal

Move the euro and the emerging-market currencies

Euro vs. dollar

SteadyFalls 10%

Peso and renminbi

SteadyFall 10%

Revenue per $100$100.00$96.50$96.50$93.00

0.0%−3.5%−3.5%−7.0%in line with Before the movebelow Before the movebelow Before the movebelow Before the move

Before the move $100.00

$93.00$100.00

DXY: no moveDXY: no move, though revenue fellDXY rises: the euro is 57.6% of itDXY rises, but only for the euro part

The better approach is to build a company-specific currency basket, then account for local costs and hedges (contracts that lock in an exchange rate ahead of time; see hedging). DXY and the broad index become benchmarks for that model, not substitutes for it.

For a first pass, the company FX sensitivity calculator separates foreign revenue, foreign costs, hedging and exchange-rate assumptions, so you don't apply an index move straight to earnings.

Member research: Local costs decide how much of a currency move reaches profit. The Newmont case study works through a gold miner where currency swings could cushion or worsen a change in the gold price, depending on where its costs are incurred.

Nominal vs. real: the version that tracks competitiveness

The Fed publishes both nominal and real indexes. A nominal index reflects exchange rates only. A real index also adjusts for how fast prices are rising in the U.S. compared with other countries.

That adjustment matters for competitiveness. If the dollar doesn't move but U.S. prices rise faster than foreign prices, American goods still get relatively more expensive abroad. A real index captures that; a nominal one doesn't.

A flat dollar can still make U.S. goods dearer

1. Dollar unchanged to U.S. goods dearer abroad
2. U.S. prices rise faster to U.S. goods dearer abroad
3. U.S. goods dearer abroad to Real index captures it
4. U.S. goods dearer abroad to Nominal index misses it

DXY is normally discussed as a nominal market price. Don't treat it as a full measure of inflation-adjusted U.S. competitiveness. Even the real broad index is an aggregate that can't reproduce one company's product mix or contracts.

Which dollar index should you use?

A functional currency is the currency a business unit keeps its books in. A company can have euro exposure that looks like DXY, peso or renminbi exposure that doesn't, or natural hedges (costs in the same currency as sales) that make both indexes poor earnings proxies.

For imports, even the right index is only part of the picture. Commodity prices, tariffs, freight, contracts and profit margins all shape what consumers finally pay.

For the stock question, read how DXY affects stocks and earnings, which walks through the four channels from the dollar to share prices. "The dollar" is not one uniform series, and a correlation from one period is not a trading rule.

Common mistakes

• Calling every dollar index "DXY"
• Using DXY to stand in for countries that aren't in its basket
• Drawing an inflation-adjusted conclusion from a nominal index
• Assuming index weights match a company's revenue weights
• Inferring cause and effect from a short-period stock correlation
• Ignoring why the dollar moved in the first place

Try it yourself

A 10-minute exercise with a company you own or follow:

1. Open its latest annual report (10-K) and find revenue by geography, usually in the segment note. Write down each region's share.
2. Check each region against the six currencies in the ICE methodology. Mark which slices DXY covers and which it misses.
3. Open the company FX sensitivity calculator. Add one row per region with its revenue mix and, if the filing gives it, cost mix and hedge ratio.
4. Apply a -10% currency move to one row at a time, like scenarios A and B above, and note the revenue and EPS impact each time.
5. Now use only the calculator's optional DXY move and compare the result with step 4.

You should now be able to answer: which index, if either, would have warned you about this company's biggest currency risk?

Our read

DXY is the right tool for the market instrument. The broad index is the right tool for economy-wide trade questions. For a specific stock, both are context; the answer lives in the company's disclosures.

The index name is not a detail. It decides what the number measures.

What would change that default: if a company's foreign revenue is mostly euro and yen, DXY becomes a reasonable proxy. If most of its exposure sits in emerging markets, lean on the broad index or the emerging-market version. If it hedges heavily, neither index tells you much about near-term earnings.

Questions readers ask

Is DXY the same thing as "the dollar"?

No. DXY is one index of the dollar against six currencies, with more than half its weight in the euro. When someone says "the dollar rose," check which index they mean before applying it to a company or the economy.

Why does the euro dominate DXY?

The basket's weights rest on 1973 trading relationships and are structurally fixed. The euro inherited the weight of the currencies it replaced, which together total 57.6%. Trade patterns have shifted since, which is why the Fed's broad index reweights with trade data.

Where can I see the broad dollar index?

The Fed publishes its broad, advanced-foreign-economy and emerging-market-economy indexes on its H.10 release page, linked above. It publishes both nominal and real indexes.

Should I use the nominal or real index?

Use nominal for what exchange rates did. Use real when the question is competitiveness, because it also adjusts for inflation differences between the U.S. and its trading partners.

Go deeper with member research

Currency is one input to a company's results. The course shows you how to fit it into a full investment case:

• The fundamental research course: 40 chapters that take you from reading a 10-K to writing your own research memo. The first chapter is free.

Limits of this data

• Index methodologies and currency weights can change. Check the current ICE and Fed documentation before relying on either benchmark.
• Neither index reflects a single company's revenue mix, costs or hedges.