The DXY (Dollar Index (DXY)) is your primary gauge for dollar strength. Understanding what it measures — and what it doesn't — prevents misinterpretation.

What DXY Measures:

DXY tracks the dollar against a basket of 6 major currencies:

• Euro: 57.6% (dominant!)
• Japanese Yen: 13.6%
• British Pound: 11.9%
• Canadian Dollar: 9.1%
• Swedish Krona: 4.2%
• Swiss Franc: 3.6%

Key Insight: DXY is really a euro index in disguise. Because the euro is 57.6% of the basket, EUR/USD drives most DXY movement. A 'strong dollar' in DXY terms often just means a 'weak euro.'

What DXY Doesn't Measure:

DXY excludes:

• Chinese yuan (massive trading partner)
• Emerging market currencies
• Most Asian currencies

Reading DXY for Macro:

DXY Falling:

• Often bullish for risk assets (capital flowing OUT of dollar into risk)
• Bullish for EM (dollar debt easier to service)
• Bullish for commodities (priced in dollars)
• Can signal either reflation OR debasement depending on context

DXY Rising:

• Often bearish for risk assets (flight TO dollar)
• Bearish for EM (dollar wrecking ball)
• Bearish for commodities

The Distinction:

DXY down + gold up + oil down = DEBASEMENT (currency fear, not growth) DXY down + gold up + oil up = REFLATION (growth optimism)