The Dollar Thermometer
A visual guide to understanding the DXY Index and its impact on your finances.
What Is the DXY Index?
The DXY measures the strength of the U.S. dollar against a basket of six major currencies. Created in 1973 with a base value of 100, it serves as a key indicator of the dollar’s position in global markets.
(Current hypothetical value)
The Composition of the DXY
The index is heavily weighted toward the Euro, meaning that the health of the European economy has a disproportionate impact on the DXY’s value.
What Drives the DXY?
🏦
Fed Policy
Interest rate hikes attract capital, strengthening the dollar.
📈
U.S. Economy
Strong growth and low unemployment increase confidence in the dollar.
DXY
Dollar Index Rises
The Global Domino Effect
A strong DXY (strong dollar) sends ripples across global markets. Historically, it shows an inverse relationship with commodity prices and emerging market currencies.
Impact on Latin America
💸
External Debt
Debt service denominated in dollars becomes more expensive for governments and companies.
🛒
Imported Inflation
Goods such as fuel, technology, and imported food become more expensive in local currency.
📉
Capital Flight
Investors seek the safety of the dollar, withdrawing capital from the region and raising borrowing costs.
The DXY Through History
The index reacts to major economic events. In times of global crisis, investors flock to the dollar as a safe haven, causing spikes in the DXY.