U.S. Dollar Futures Market
As part of the financial sector of commodities futures, U.S. dollar index futures are a measure of the value of the U.S. dollar relative to majority of its most significant trading partners. This index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies. As a financial commodities contract, the U.S. dollar is the most-used currency in international transactions and as other countries’ official currency. Furthermore, the dollar is also one of the world’s reserve currencies. Today, the dollar is the standard unit of currency in many commodity markets, such as gold and oil, all over the world.
U.S. Dollar Index History
The U.S. dollar index was originally a geometrically weighted average of ten different currencies, with each currency representing a country that was a major trading partner with the United States. With the introduction of the euro, the USDX index became a geometrically weighted average of six currencies, which represent five major U.S. trading partners and the euro (source: InterContinental Exchange (ICE).
Facts About Dollar Futures
U.S. dollar index futures can allow traders the opportunity to assess value fluctuation, in relation to other currencies, with one transaction. Traders can also hedge their accounts against risk associated with a fluctuation. For 21 hours a day, U.S. dollar index futures are traded on the ICE. Currency rates are determined by a one base currency quoted in relation to a different currency. Major currencies that are traded are floating. Central bank monetary policies can affect the value of currency. In the U.S., monetary policy is set by the Federal Open Market Committee (FOMC) of the Federal Reserve. U.S. dollar index futures also react to economic data in the nation and globally, as the reports directly impact the strength of the dollar and its relation to other currencies.
Trading U.S. Dollar Futures
- U.S. dollar index futures began trading in 1985 on the on the Financial Instruments Exchange, a division of the New York Cotton Exchange, which became the New York Board of Trade (NYBOT). It now trades on the renamed InterContinental Exchange (ICE).
- USDXY futures are also available in exchange-traded funds (ETFs), options and mutual funds.
- Dollar index futures are delivered four months in the March/June/September/December quarterly expiration cycle.
- The DX contract has no price limits.