What is DXY?
The US Dollar Index (DXY) measures the dollar against a basket of major currencies (EUR, JPY, GBP, CAD, SEK, CHF).
Why It Matters
The dollar is the world's reserve currency. Its strength affects:
- Multinational earnings (strong dollar = weaker overseas revenue)
- Commodity prices (priced in USD)
- Emerging markets (dollar debt burden)
- Global liquidity (dollar strength tightens conditions)
The Inverse Relationship
Generally:
- Strong dollar = Pressure on risk assets
- Weak dollar = Support for risk assets
Key Levels
| DXY Level | Interpretation |
|---|---|
| > 110 | Very strong, potential risk-off driver |
| 100-110 | Strong, headwind for equities |
| 90-100 | Normal range |
| < 90 | Weak, tailwind for equities |
What Drives DXY?
- Interest rate differentials
- Economic growth differentials
- Risk appetite (flight to safety = stronger dollar)
- Fed policy expectations