Trade, economy, finance etc. the primary currency that we encounter in many areas is the US dollar. Many states, institutions, investors and individuals consider the value of the dollar when making decisions in many areas such as monetary policy management, new investment ideas, import and export. A number of tools are used when measuring the value of the dollar against other currencies. In the dollar index, it is one of these tools and even the most important.
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What is the Dollar Index?
The dollar index is an index that is used to measure the value of the US dollar compared to other currencies. It has a distribution according to the coefficients of 6 types of currencies. The dollar index is formed by taking the geometric average of these currencies according to their coefficients.
Weights of currencies in the dollar index;
- Eurusd (euro-dollar) 57.6%
- Usdjpy (dollar-japanese yen) 13.6%
- Gbpusd (British pound-dollar) 11.9%
- Usdcad (dollar-Canadian dollar) 9.1%
- Usdsek (dollar-Swedish krona) 4.2%
- USDCHF (dollar-swiss franc) 3.6%
Historical Development of Dollar Index
For a long time, as a result of the fed's monetary expansion and low interest rate decision, the dollar depreciated against other currencies and the index decreased. We see that the index is on the rise.
The Effect of the Dollar Index on the Markets
The Use of the Dollar Index in Forex
It is very important for investors who trade in forex, one of the largest financial markets in the world, to follow the dollar index in order to gain profits. We can say that there is a perception that the currency is gaining in value. Investors trading in products based on the American dollar shape their purchases and sales in this direction and try to seize earning opportunities.
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