The US Dollar Index (USDX, DXY, DX) represents the value of the US Dollar against the basket of foreign currencies. The index is a weighted geometric mean of dollar value against the following currencies:
The currencies represent the most important US trading partners. The index structure changed only once when the euro came instead of many European currencies in 1999, the Deutschemark for example. It is calculated as follows:
USDX = 50.14348112 × EURUSD-0.576 × USDJPY0.136 × GBPUSD 0.119 × USDCAD0.091 × USDSEK0.042 × USDCHF0.036
The Dollar index was created by the Federal Reserves, in 1973 in the aftermath of the Bretton Woods system. The initial value was 100.000, varying from as high as 164.7200 in February 1985, to as low as 70.698 on March 16, 2008. The index would increase/decrease in value whether Dollar gain/lose strength compared to other currencies. Thus, it provides an overview of the value of Dollar against the basket of major global currencies. The USDX futures contract trades on the Intercontinental Exchange (ICE). The index can be traded indirectly with ETFs and mutual funds.
There is a common thought among the traders and economist the index should be updated to reflect other key US trading partners such as China, Mexico, Brazil, and South Korea with whom the US trades more than with Sweden or Switzerland.
The another similar but much broader Dollar index is the Trade Weighted US Dollar Index (TWDI) computed and published by the Fed since 1998. It represents the value of the US Dollar against a basket of 26 currencies. The index provides an overview of how much US goods are competitive relative to goods from other countries.