Trade Weighted US Dollar Index

The Trade Weighted US Dollar Index (also known as "The Broad Index") is a key figure that compares the value of the US dollar using a basket of 26 currencies. The index is the trade-weighted average against these currencies. It was first published in 1998 by the US Federal Reserve (FED).

concept

The Major Currencies Index
rank	currency	code	Weighting in% (2010)
1	Euro	EUR	36.56
2	Japanese yen	JPY	30.21
3	British pound	GBP	16.98
4th	Canadian dollar	CAD	8.49
5	Swiss franc	CHF	3.15
6th	Australian dollar	AUD	2.63
7th	Swedish crown	SEK	1.98

The Trade Weighted US Dollar Index shows the ratio of 26 currencies to the US dollar , taking into account the euro with the trading volume from 14 EU countries. All currencies are expressed in units of measure of currency per US dollar. The US central bank calculates the effective exchange rates in the index with a broad group (The Broad Index) of trading partners. This is split into a main group (The Major Currencies Index) and a subsidiary group (OITP - Other important trading partners).

The main group contains the following 7 currency areas: Euro, Canadian dollar , Japanese yen , British pound , Swiss franc , Australian dollar and Swedish krona . The strength or weakness of the US dollar can be read from the course of the trade-weighted US dollar index. A rising index means an appreciation of the US dollar against the currencies in the currency basket , while a falling index means a depreciation.

Connections to commodity indices are recognizable. A falling Trade Weighted US Dollar Index means that commodity prices tend to rise. This is especially true for agricultural commodities and the price of oil . Even the gold price correlates with a falling index. The trade-weighted US dollar index marked a multi-year low on May 2, 2011, and the gold price in US dollars an all-time high on the same day.

In addition to the Trade Weighted US Dollar Index of the US Federal Reserve (FED), there is also the US Dollar Index (USDX), which compares the value of the US dollar using a currency basket of 6 currencies. The USDX is the geometrically weighted average compared to these currencies. It was introduced in 1973 and is listed on the ICE Futures US futures exchange .

Compared to the US Dollar Index, the FED's index measures the value of the US dollar much more accurately, as the weighting of the FED represents the competitiveness of US goods compared to other countries and trading partners.

The arithmetically weighted Euro Currency Index and the trade-weighted Euro Effective Exchange Rate Index of the European Central Bank (ECB) use a calculation method similar to the US Dollar Index .

calculation

Three weights

The Trade Weighted US Dollar Index of the US Federal Reserve weights the individual countries or currency areas with a combination of three different bilateral weights. This includes imports, exports and third-market transactions. The combination of these three areas forms the weighting of the Trade Weighted US Dollar Index.

bilateral weighting according to imports of goods into the USA = import weight of the country in the period = share of the country in the total US goods imports in the period

${\ displaystyle \ mu _ {\ text {US, j, t}} = {\ frac {M _ {\ text {US, j, t}}} {\ sum _ {j = 1} ^ {N (t) } M _ {\ text {US, j, t}}}}}$

${\ displaystyle \ mu _ {\ text {US, j, t}}}$ ${\ displaystyle j}$ ${\ displaystyle t}$
${\ displaystyle M _ {\ text {US, j, t}}}$ ${\ displaystyle j}$ ${\ displaystyle t}$
bilateral weighting according to exports of goods from the USA = export weight of the country in the period = share of the country in the total US goods exports in the period

${\ displaystyle \ epsilon _ {\ text {US, j, t}} = {\ frac {X _ {\ text {US, j, t}}} {\ sum _ {j = 1} ^ {N (t) } X _ {\ text {US, j, t}}}}}$

${\ displaystyle \ epsilon _ {\ text {US, j, t}}}$ ${\ displaystyle j}$ ${\ displaystyle t}$
${\ displaystyle X _ {\ text {US, j, t}}}$ ${\ displaystyle j}$ ${\ displaystyle t}$
bilateral weighting of the “third market effects” = third market weight of the country in the period = export weight of the country in the period = share of the economy in the imports of the country in the period (where ) = multiplicative factor (1 - weight of imports in the country from the USA in the period ) [sum of the weights becomes 1]

${\ displaystyle \ tau _ {\ text {US, j, t}} = \ sum _ {k \ neq 1; k \ neq US} ^ {N (t)} \ epsilon _ {\ text {US, k, t}} {\ frac {\ mu _ {\ text {k, j, t}}} {(1- \ mu _ {\ text {k, US, t}})}}}$

${\ displaystyle \ tau _ {\ text {US, j, t}}}$ ${\ displaystyle j}$ ${\ displaystyle t}$
${\ displaystyle \ epsilon _ {\ text {US, k, t}}}$ ${\ displaystyle k}$ ${\ displaystyle t}$
${\ displaystyle \ mu _ {\ text {k, j, t}}}$ ${\ displaystyle k}$ ${\ displaystyle j}$ ${\ displaystyle t}$ ${\ displaystyle k \ neq j}$
${\ displaystyle (1- \ mu _ {\ text {k, US, t}})}$ ${\ displaystyle k}$ ${\ displaystyle t}$

Linking the weights

The coefficients of the three partial weights were chosen to give equal weights to competition from imports into US markets and competition from US exports in overseas markets. In addition, the bilateral export weights and the weights for recording competition in third markets are given the same importance.

${\ displaystyle w _ {\ text {j, t}} = {\ frac {1} {2}} \ mu _ {\ text {US, j, t}} + {\ frac {1} {2}} \ left ({\ frac {1} {2}} \ epsilon _ {\ text {US, j, t}} + {\ frac {1} {2}} \ tau _ {\ text {US, j, t} } \ right)}$

composition

The Trade Weighted US Dollar Index (The Broad Index) contains the following currencies (as of April 18, 2011).

The Broad Index
rank	currency	ISO 4217 code	Weighting in%
1	Chinese renminbi	CNY	19,871
2	Euro	EUR	17.623
3	Canadian dollar	CAD	13.209
4th	Mexican peso	MXN	10,383
5	Japanese yen	JPY	7.477
6th	British pound	GBP	4.226
7th	South Korean won	KRW	3,689
8th	Taiwan dollars	TWD	2.407
9	Singapore dollar	SGD	2.083
10	Brazilian real	BRL	1.901
11	Swiss franc	CHF	1,795
12	Malaysian ringgit	MYR	1,740
13	Indian Rupee	INR	1,700
14th	Thai baht	THB	1.424
15th	Australian dollar	AUD	1,338
16	Hong Kong dollars	HKD	1.327
17th	Israeli shekel	ILS	1.137
18th	Indonesian rupiah	IDR	1.033
19th	Russian ruble	RUB	1.024
20th	Swedish crown	SEK	0.874
21st	Saudi riyal	SAR	0.806
22nd	Chilean peso	CLP	0.784
23	Colombian peso	COP	0.622
24	Philippine peso	PHP	0.568
25th	Argentine peso	ARS	0.550
26th	Venezuelan bolívar	VEF	0.410

history

Historical overview

The US Federal Reserve (FED) launched the Trade Weighted US Dollar Index at the end of 1998. The broad group in the index (The Broad Index) was calculated back to 1995 (daily rates) and 1973 (monthly rates). The main group (The Major Currencies Index) was recalculated until 1973 (daily rates).

In the 1970s, the Broad Index began to move upwards for several years. By March 1985 it rose by 126.0 percent to a high of 69.24 points. With the devaluation of the US dollar against most currencies, the index fell to a low of 58.64 points by December 1987. This corresponds to a decrease of 15.3 percent compared to 1985. The low marks the end of the short-term downtrend.

In the next 15 years, the trade-weighted US dollar index was on the way up again. On February 27, 2002 the index marked an all-time high of 130.24 points. The weakness of the US dollar against almost all currencies caused the index to decline again in the following years. On July 15, 2008, the Broad Index fell to a low of 94.79 points. This corresponds to a decrease of 27.2 percent compared to the all-time high of 2002.

During the course of the international financial crisis , which had its origin in the US real estate crisis in the summer of 2007, the index began to rise again. From autumn 2008 the crisis increasingly affected the real economy. As a result, stocks and commodities collapsed worldwide. The US dollar served as a safe haven currency and appreciated against most currencies. On March 3, 2009, the index was 115.04 points, 21.4 higher than in July 2008.

The US's high budget deficit , growing national debt, and doubts about the country's credit rating weakened the dollar in the years that followed. On July 26, 2011, the Trade Weighted US Dollar Index (The Broad Index) fell to 93.95 points, its lowest level since 1995.

Annual development

The table shows the annual high, low and closing levels of the Trade Weighted US Dollar Index (The Broad Index) calculated back to 1973.

year	Peak	Lowest point	Final stand
1973	33.97	30.64	32.31
1974	33.30	31.79	32.84
1975	35.14	32.29	35.14
1976	36.82	35.08	36.82
1977	37.16	36.16	36.16
1978	35.99	33.73	34.66
1979	36.21	34.66	35.89
1980	37.43	35.69	37.14
1981	42.51	37.06	41.43
1982	50.08	42.11	49.29
1983	55.97	49.30	55.97
1984	65.15	56.28	65.15
1985	69.24	64.92	65.04
1986	64.98	60.91	62.43
1987	61.64	58.64	58.64
1988	63.37	59.01	61.56
1989	69.61	62.90	69.61
1990	73.39	69.34	70.69
1991	76.41	70.70	74.13
1992	80.85	74.41	80.85
1993	87.52	81.51	87.52
1994	92.04	89.54	92.04
1995	96.02	89.03	95.46
1996	99.29	95.67	99.01
1997	113.82	99.11	113.82
1998	121.36	113.15	113.75
1999	118.80	112.97	114.96
2000	124.97	114.36	122.21
2001	128.66	122.11	128.05
2002	130.24	122.43	124.31
2003	124.68	113.35	113.35
2004	118.14	108.19	108.19
2005	112.93	108.07	111.75
2006	111.17	106.10	106.92
2007	108.08	97.74	99.04
2008	112.46	94.79	107.40
2009	115.04	99.70	101.79
2010	106.74	97.76	99.28
2011	101.48	93.95	100.64
2012¹	102.99	97.74	99.21

¹ December 31, 2012

Web links

Individual evidence

^ The Chart Store: Major Currencies Dollar Index
↑ ^a ^b Federal Reserve System: Indexes of the Foreign Exchange Value of the Dollar (PDF; 74 kB)
^ Federal Reserve System: Currency Weights
^ Federal Reserve System: Nominal Broad Dollar Index from 1995

[1] The Chart Store: Major Currencies Dollar Index

[USFR-Dollar-2] Federal Reserve System: Indexes of the Foreign Exchange Value of the Dollar (PDF; 74 kB)

[3] Federal Reserve System: Currency Weights

[4] Federal Reserve System: Nominal Broad Dollar Index from 1995