Understanding this indicator
A move in one dollar exchange rate can be driven by news from either side of the pair. The US Dollar Index offers a broader reference by measuring the dollar against a defined basket of six currencies. This chart looks at that index through its annual changes, making periods of dollar strength and weakness easier to compare.
We use monthly observations of the ICE US Dollar Index and compare each with the same month a year earlier. The annual change is measured using the logarithm of the ratio. A positive year-on-year reading means the dollar is stronger against the index basket than a year earlier; a negative reading means weaker. The basket has its own weights, so it is not a measure against every currency equally.
A change in direction can matter before the reading crosses zero. The dollar may still be stronger than a year earlier while its annual gain is fading, or weaker while its annual decline is narrowing. This is why the cycle view follows both the level and direction of annual performance, rather than treating every upward movement as a new monthly rally.
Compare the chart with the foreign-currency pairs and the common currency cycle. Their directions are often opposite because those pairs are quoted as foreign currencies against USD. Differences can reveal the role of the basket and the behaviour of particular currencies. Reading the dollar alongside commodities, interest rates and equities helps place its movement within the wider economic cycle.
The green line isolates the 3–4-year Kitchin cycle from the historical data; it is a fitted cycle, not a forecast of the next turn. The lower chart shows the 7–10-year Juglar cycle and the 15–25-year Kuznets cycle. Comparing these time scales can reveal why a shorter upswing sometimes sits within a much longer period of weakness. The two main-chart axes use different scales, so compare their timing and direction rather than the height of one line against the other. Historical curves may change as the data are updated.