The US Dollar Index - a Valuable Tool For Investors

List: Posted: 02/03/11

When you are looking into futures investing and mutual fund investing, there are a number of different terms that you will need to learn.  One term you may hear frequently is "U.S. Dollar Index."  What exactly does this term mean, and how does it relate to the world of investing?

Essentially, the U.S. Dollar Index is a measure of the worth of the dollar against a group of foreign currencies.  The current makeup of the currencies it is measured against is 57.6% Euro, 13.6% Japanese Yen, 11.9% Pound Sterling, 9.1% Canadian Dollar, 4.2% Swedish Krona, and 3.6% Swiss Franc.  The index measures the value of the dollar relative to this composition.

Using the U.S. Dollar Index, the dollar can be traded on the intercontinental exchange as well as exchange traded funds, or ETFs.  The dollar is often heavily traded by people investing in foreign currencies, although recovery has been slow since the U.S. Dollar Index hit an all time low of 78 in 2008.

Investing in the U.S. Dollar Index is possible from Sunday nights to Friday evenings, which are the hours that the global markets are open.  Foreign currency investing is perhaps riskier than ever these days, however, with many economies still in a state of decline or plateau. 

No investing professional knows what the future will bring, but many are hopeful that the U.S. Dollar Index will start to improve as the economy makes an upward swing.  The dollar was once one of the world’s highest performing currencies, and it is hoped by many in the investing world and the US as a whole that the same will soon be true again.

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