Interpretation of the US dollar index
2023-10-03
■ The US dollar index has been at a high level since November 2022, reflecting the depreciation of the euro, yen, and pound.
■ To make the US dollar exceed 155 yen against the Japanese yen, in addition to the appreciation of the US dollar, the premise is that both the euro and the Japanese yen need to further depreciate.
The US dollar index (DXY) is an indexed representation of the value of the US dollar relative to multiple major national currencies such as the euro, yen, and pound sterling. The Federal Reserve Board (FRB) and the Intercontinental Exchange (ICE) * 1 calculated the index using their respective methods. The FRB includes 26 currencies and the ICE includes 6 currencies. In this article, we refer to ICE data, and the currency composition is 57.6% in euros, 13.6% in yen, 11.9% in pounds, 9.1% in Canadian dollars, 4.2% in Swedish krona, and 3.6% in Swiss francs.
There is a strong "positive correlation" between DXY and the US dollar/Japanese yen, with a correlation coefficient of 0.53 since the yen entered the floating exchange rate system in February 1973 and rising to 0.65 after the FRB began raising interest rates in March 2022. On the other hand, there is a strong "negative correlation" between DXY and the euro against the US dollar, especially after the European Central Bank (ECB) started raising interest rates and lifted its negative interest rate policy in July 2022, and expanded the rate hike in September of the same year, the correlation is very strong, at -0.97 and -0.98, respectively. This is evident at a glance through the currency composition ratio of ICE.
In September 2022, DXY reached a high of 114.77 and then sharply declined. The European Central Bank began raising interest rates in July and expanded the rate hike in September, resolving the deviation from the FRB's monetary policy stance, leading to a depreciation of the US dollar and an appreciation of the euro. In the process of continuing to decline, DXY reached a low of 99.57 in July of this year and then rebounded, reaching 106.83 yesterday. However, the rebound strength of DXY is limited to around 50% of the decline since September last year, which is relatively sluggish compared to the rebound strength of the US dollar against the Japanese yen since October 2022. The USD/JPY may realize its high of 151.94 yen in October 2022, but in order for the USD/JPY to exceed 155 yen, in addition to maintaining DXY at a high of 114.77 yen in September last year, or requiring the euro to depreciate to the level of 0.9534 yen in September last year, the momentum of yen depreciation needs to be further strengthened.
*1. Major exchanges in the United States engage in electronic trading of spot, futures, and options such as stock indices.
■ To make the US dollar exceed 155 yen against the Japanese yen, in addition to the appreciation of the US dollar, the premise is that both the euro and the Japanese yen need to further depreciate.
The US dollar index (DXY) is an indexed representation of the value of the US dollar relative to multiple major national currencies such as the euro, yen, and pound sterling. The Federal Reserve Board (FRB) and the Intercontinental Exchange (ICE) * 1 calculated the index using their respective methods. The FRB includes 26 currencies and the ICE includes 6 currencies. In this article, we refer to ICE data, and the currency composition is 57.6% in euros, 13.6% in yen, 11.9% in pounds, 9.1% in Canadian dollars, 4.2% in Swedish krona, and 3.6% in Swiss francs.
There is a strong "positive correlation" between DXY and the US dollar/Japanese yen, with a correlation coefficient of 0.53 since the yen entered the floating exchange rate system in February 1973 and rising to 0.65 after the FRB began raising interest rates in March 2022. On the other hand, there is a strong "negative correlation" between DXY and the euro against the US dollar, especially after the European Central Bank (ECB) started raising interest rates and lifted its negative interest rate policy in July 2022, and expanded the rate hike in September of the same year, the correlation is very strong, at -0.97 and -0.98, respectively. This is evident at a glance through the currency composition ratio of ICE.
In September 2022, DXY reached a high of 114.77 and then sharply declined. The European Central Bank began raising interest rates in July and expanded the rate hike in September, resolving the deviation from the FRB's monetary policy stance, leading to a depreciation of the US dollar and an appreciation of the euro. In the process of continuing to decline, DXY reached a low of 99.57 in July of this year and then rebounded, reaching 106.83 yesterday. However, the rebound strength of DXY is limited to around 50% of the decline since September last year, which is relatively sluggish compared to the rebound strength of the US dollar against the Japanese yen since October 2022. The USD/JPY may realize its high of 151.94 yen in October 2022, but in order for the USD/JPY to exceed 155 yen, in addition to maintaining DXY at a high of 114.77 yen in September last year, or requiring the euro to depreciate to the level of 0.9534 yen in September last year, the momentum of yen depreciation needs to be further strengthened.
*1. Major exchanges in the United States engage in electronic trading of spot, futures, and options such as stock indices.