General Electric is a highly well known, multi-national company that conducts sales and operations around the world. Today, we will be focusing on GE’s sales and operations in Europe. In order to do so, it is important to view and study the DXY along with the exchange rates of the US Dollar and the Euro. The DXY is the US Dollar Index, which is a measure of the value of the United States Dollar relative to a basket of foreign currencies. Within this basket are the Euro (weighted at 57.6%), the Yen (weighted at 13.6%), the Pound (weighted at 11.9%), the Canadian Dollar (weighted at 9.1%), the Swedish Krona (weighted at 4.2%), and the Swiss Franc (weighted at 3.6%). The DXY began as an arbitrary 100.00 in 1973 where it is currently at 96.56. To understand what this number means, we must realize that an index is an indicator; meaning that the number itself isn’t important but what it’s related to has significance.
The DXY is related to exchange rates, and through exchange rates, the DXY is related to the strength of the US Dollar. As the dollar appreciates, the Euro decreases in value. In addition, as the dollar appreciates, foreign materials become relatively inexpensive, making imports increase. According to the exchange rate, the US dollar is worth +/- .90 Euros, so the dollar is stronger than the Euro and products and materials in Europe are currently inexpensive. If GE is looking into the impact on their European operations, then the DXY should not be considered. The exchange rate is a more effective tool in forecasting along with viewing current data within the Euro. Since the DXY is an index that includes a basket of other currencies, it is difficult to get an appropriate and relative view of the strength of the US Dollar compared to the Euro.
The main piece of information that needs to be considered throughout this decision process is that about half or more