A New Forex Trader's Intro to the US Dollar Index
Written by A Forex View From Afar on Saturday, January 12, 2008Back to www.thelfb.com
The US$ is under pressure because of growth forecasts, debt obligations and being on the wrong side of Oil and Gold movements. The one saving grace is that US Treasury Notes, the vehicle that overseas investors move to in times of fear, can only be purchased in US$’s and therefore those investors need to swap their local currency to buy US Dollars, and then buy the Treasury Notes. That however has been tempered by the rush to get Long on Gold, the ultimate hedge against Inflationary pressures.
The US$ is on 90% of all currency trades, it is a dominant currency. The Euro is now making up a large portion of those trades, and at 58% of the Dollar Index, one cannot move very far without automatically impacting the other.
The Index is made up of Euro 58%, Yen 13%, Pound 12%, Canadian 9%, Swedish Kroner 4% and Swiss Franc 4%. The Index was developed in March 1973, its value each day is reflection of the value of the US$ now compared to what it was worth in 1973. A read of 75.00 on the Index equates to the US$ value being 75% of what it was three decades ago. A weaker dollar> It here already.
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