The US Dollar Index was little changed on the day, up by 0.1% to 104.25. That’s an encouraging sign, with PMI data from Chinese firms indicating continued growth in manufacturing activity. This modest advance has placed the index above the 104.00 mark, resulting in a small daily positive move. The index remains a popular barometer for investors looking to see how the dollar stacks up.
The US Dollar Index is perhaps the most commonly referenced to gauge the US dollar’s strength or weakness. The Federal Reserve Bank of New York computes this useful index on a monthly basis. It measures the value of the dollar against a basket of six key currencies—the euro, Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc. This composite acts as a leader index and timing tool traders and investors alike can use to hedge or speculate on currency risk.
The index responds dynamically to various economic data releases, demonstrating its sensitivity to changes in interest rates and monetary policy decisions. In doing so, the recent PMI figures have had an outsized impact on its movement.
"A welcome upturn in service sector activity in March has helped propel stronger economic growth at the end of the first quarter," stated Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.
Williamson warned that the growth is likely becoming less broad-based.
"However, the survey data are indicative of the economy growing at an annualized 1.9% rate in March and just 1.5% over the quarter as a whole, pointing to a slowing of GDP growth compared to the end of 2024," Williamson added.
In many ways, investors use the US Dollar Index as a barometer of overall market sentiment. The index’s ups and downs offer important clues about the economic terrain. Traders usually rely on this information to calculate the value of such economic reports.
The US Dollar Index is still considered the most important indicator on the markets today, controlling trading strategies and investment decisions across the globe. Its movement is an early indicator of changes in economic conditions and investor sentiment. This unique combination of features makes it an indispensable tool for professional currency traders.