# Understanding the US Dollar Index: Why It Matters for Your Portfolio

The DXY (US Dollar Index) is basically the Fed's report card for the dollar's strength. It measures the greenback against six major reserve currencies—primarily the euro (which makes up over half the weighting).

**Here's why you should care:**

The dollar index is the pricing backbone for commodities worldwide. A stronger dollar typically pressures commodity prices lower (think oil, gold, agricultural goods), while dollar weakness tends to pump them higher. That's because when the dollar strengthens, foreign producers' costs drop, letting them undercut global prices.

**The numbers tell the story:**
- March 2020 peak: 103.96 (highest in 18 years)
- By early 2021: Crashed to 89.165—a brutal 14.2% drop in nine months
- Trading range: Stuck between 89-91.6, consolidating near support

**Why the dollar got hammered:**
1. **Rate differentials collapsed** – Fed dropped rates to zero, killing the yield advantage over the euro
2. **Liquidity tsunami** – Record money printing inflated US money supply, eroding purchasing power
3. **Technical breakdown** – Trend traders piled on short positions as it broke key support levels

The kicker? Despite being the world's reserve currency, the dollar was stuck in a confirmed downtrend heading into 2021. That 88.15 February 2018 low was the next critical support—a break below would likely trigger panic selling from speculators.