The U.S. Dollar Index. How Low Can It Go?

The U.S. Dollar Index is once again trading lower this morning. The U.S. Dollar Index is a basket of six other leading currencies verse the U.S. Dollar. Most commodities are traded in U.S. Dollars and this makes the dollar the worlds reserve currency. In June 2010, the U.S. Dollar Index was trading around $88.70, today the dollar is trading at $76.66. This is nearly a 14.0 percent decline in just nine months.

Food and energy inflation is soaring around the world. The more diluted the dollar becomes the higher commodity prices can go. Gold and silver have been soaring to new decade highs. Oil, copper, cotton, coffee, and other commodities continue to soar. However, the Federal Reserve says that inflation is contained. Purchasing power by people on fixed incomes is declining rapidly. Retirees are starting to really feel the high inflation as a larger potion of their income is now going toward food and energy. Riots and protests continue to escalate around the world over the high price of food.

Normally, when the U.S. Dollar Index declines the stock market has inflated higher. That has not been the case over the past few days as the stock market and the U.S. Dollar Index have declined together. This is certainly a change in character to what we have been used to seeing. As long as the U.S. Dollar Index remains weak many investors feel that gold, silver, and oil are the safe havens trades.

The U.S. Dollar Index is a weighted geometric mean of the dollar’s value compared only with:

Euro  57.6% weight
Japanese Yen 13.6% weight.
Pound Sterling  11.9% weight
Canadian Dollar  9.1% weight
Swedish Krona  4.2% weight and
Swiss Franc  3.6% weight.