Well before the Federal Reserve enacted its first interest rate hike in March the dollar has been on a dynamic upside surge. In July 2021 the dollar index traded to a low of 89.45 and in just over a year moved to a 20-year high with the dollar index currently trading above 110. When analysts talk about dollar strength it is a little misleading on the surface.
The dollar has lost value and continues to lose value in terms of its buying power. With inflation running over 8% the cost of goods and services continues to mean that the United States dollar has less buying power than it did a year ago, five years ago, or 20 years ago.
The dollar index’s strength represents the dollar as it relates to the basket of six currencies it is paired against. Within this foreign currency basket, certain ones carry more weight. The Eurodollar for example accounts for 56.7% by far the largest component of the index. The Japanese yen is weighted at 13.6%, the British pound at 11.9%, the Canadian dollar at 9.1%, the Swedish krona at 4.2%, and the Swiss franc is weighted at 3.6%.
Source: KitCo News