A Common Misconception About the US Dollar Index
The Dollar Index is not a good indicator of the purchasing power of the US dollar. You must remember that the dollar value quoted is just an index of its value relative to a basket of six currencies. The Euro makes up the majority of this basket. The breakdown is:
- Euro- 57.6%
- Japanese Yen- 13.6%
- Pound Sterling- 11.9%
- Canadian Dollar- 9.1%
- Swedish Krona- 4.2%
- Swiss Franc- 3.6%
As you can see, the Dollar Index value is very dependent on the Euro. With the possible breakup of the European Union, you could potentially see a major rally in the US Dollar Index without putting any bearish pressure on commodity prices. With a breakup of the EU, you could even see a major rally in Gold and Silver, even though the Dollar would likely surge to multi-decade highs.
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