Daily US Dollar Index

At the behest of the New York Board of Trade, the daily US dollar index was set up in the 1970s. At that time, the need was felt to constitute an index which would show the movement of US dollar against a group of currencies. The index was set up soon after the gold standard was discarded and the US dollar was established as a fiat currency not backed by the intrinsic value of the metal it was made of. The daily US dollar index basically shows movement of US dollar against a bundle of other currencies.

Bretton Woods system which was prevalent at that time was replaced by the daily US dollar index because severe limitations were faced by having a fixed rate system in place. But a need was felt to have a floating rate system where in the currencies could move based on demand and supply conditions prevalent in the market.

How do you decide which currencies to be considered while constituting the daily US dollar index? Well, a good start would be to consider those currencies of countries the United States has the strongest trading relations with. In the 1970s, when the daily US dollar index was set up, currencies of 17 countries were considered as these countries were the major trading partners at that point of time. However, the establishment of the Euro brought down the list to just six currencies. The most significant share in the daily US dollar index is held by Euro which has over 50% weight followed by Yen, Pound, Swedish Krona and Canadian Dollar. A minute share is also held by the Swiss Franc.

Its been quite some time that a need has been felt to revisit the weights assigned to the currencies in the daily US dollar index. Many has felt that certain countries which have started having very strong trade relations with the United States should have a representation in the daily US dollar index.

The base value of the daily US dollar index was 100 when it was set up in the 1970s. During the 1960s, it reached its height but then came down over the years. Currently, it is trading around the 70 mark. It has been at the 120 mark in 2002 but then has fallen over the last 5 years. The current economic crisis has further added to the awes of the daily US dollar index which is not able to recover much.

http://stockcharts.com/charts/gallery.html? and www.fxstreet.com are a few websites which provide information about the daily US dollar index.