ICE baskets contain six currencies.
The FOREX dollar basket is the Intercontinental Exchange (ICE) Futures U.S. dollar index. This index tracks the U.S. dollar against a basket of six currencies. As the value of the U.S. dollar appreciates or depreciates the value of the basket of currencies moves in the opposite direction.
The Basket
The six currencies are a mixture of the so-called safe haven currencies, the Swiss franc, the British pound and the Japanese yen, and the higher yielding currencies, the euro, the Canadian dollar and the Swedish kroner. Although there are only six currencies they represent 21 countries as 16 countries have the euro as their currency. Therefore it is a good tool for measuring the U.S. dollar's strength.
Components
As not every country is the same size, the basket uses geometric, weighted averages. The euro makes up 57.6 percent of the basket. The Japanese yen, 13.6 percent; the Sterling pound, 11.9 percent; Canadian dollar, 9.1 percent; the Swedish kroner, 4.2 percent; and the Swiss franc, 3.6 percent.
History
The index was started in 1973 when the biggest nations in the world decided to allow their currencies to float freely. When the index started it was set at 100. If the index was 120, the U.S. dollar would be considered strong in relation to the six currencies. As of the fourth quarter 2010, the U.S. dollar has fallen 14 percent since the start of the index.
