Basket of Currencies

US Dollar Index
 What is Basket of Currencies?

• A ‘currency basket’ is a portfolio consisting of an array of

currencies with different weightings.
• The most prominent currency basket is the U.S. dollar index
(USDX), and other Basket Currencies are European Currency
Unit, Asian Currency Unit.
•  The common use of a currency basket is to diminish the
potential risk of currency fluctuations.
• In addition, it is often a tool for establishing the market value
of another currency, which is a practice known as a ‘currency
peg’.
 U.S. dollar index (USDX)
• The USDX got its start in 1973. Nowadays, it is a basket that
consists of six currencies in total. They are the following:
1.Euro
2.Japanese Yen
3.British Pound
4.Canadian Dollar
5.Swedish Krona
6.Swiss Franc
• The Euro is, without a shadow of a doubt, the largest component of
the index. It makes up roughly 58% of the basket. The weights of
the other currencies in the index are JPY (13.6%), GBP (11.9%),
CAD (9.1%), SEK (4.2%), and CHF (3.6%).
 Last week Value of US dollar Index

• An index value of 120 suggests that the U.S. dollar has

appreciated 20% versus the basket of currencies over
the time period in question. Simply put, if the
USDX goes up, that means the U.S. dollar is gaining
strength or value when compared to the other
currencies
• Similarly, as you can see, the index is currently 92,
falling 8 from its initial value, that implies that it has
depreciated 8%. 
• On Friday, 6th August, Government released the report
of non-farm payrolls, where no. of people employed
rose by 9,43,000 in July, more than as expected.
• This was the reason the Dollar Index rose by 0.13%.
 How does US Dollar Index affect Indian Market?

• The appreciation or depreciation of rupee against the dollar impacts

the foreign fund flow into Indian equities.
• The strength and weaknesses in dollar also affects the profitability of
Indian companies which either earn a large chunk of their revenues in
dollars, or import key raw material.
• Among companies, the exporters tend to benefit from the rising USD
and depreciating INR. The IT and Pharma companies in India are
major exporters of goods and services and receive most of their
revenue in USD terms.
• India is a major importer of crude oil. If the dollar rises, the crude oil
gets costlier. It will affect the profitability of the oil importers and
Indian refineries such as IOC, HPCL and BPCL.