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1. The U.S. Dollar Index

Trade Weighted Dollar Index

There is also another kind of U.S. dollar index.

It was created by the Federal Reserve and is now used widely by lots of sexy people, like economists and currency analysts.

It is called the “Trade Weighted U.S. Dollar Index“.

You can find it on the Federal Reserve Economic Data (FRED) website here.

Their website is probably one of the most beautiful websites ever made…

Trade Weighted US Dollar Index

Just kidding. It’s a government website.

Beautiful? Like lipstick on a pig.

Useful? Hell yeah. 👍

The trade-weighted US dollar index, also known as the broad index, is a measure of the value of the U.S. dollar relative to other foreign currencies.

It is a trade-weighted index that tries to improve on the older AND privately-owned ICE U.S. Dollar Index (USDX) by using more currencies and updating the weights yearly.

The Fed wanted to create an index that could more accurately reflect the dollar’s value against foreign currencies based on how competitive U.S. goods are compared to goods from other countries.It was formed in 1998 in order to keep up-to-date with U.S. trade.

Trade Weighted US Dollar Index

The Trade-Weighted U.S. Dollar Index

The Federal Reserve Bank of St. Louis, provides “weighted averages of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.”

From strongest to weakest, here is the current weighting (in percentage) of the index:

COUNTRYWEIGHT(%)
Eurozone18.947
China15.835
Canada13.384
Mexico13.524
Japan6.272
United Kingdom5.306
Korea3.322
Taiwan1.95
Singapore1.848
Brazil1.979
Malaysia1.246
Hong Kong1.41
India2.874
Switzerland2.554
Thailand1.096
Australia1.395
Russia0.526
Israel1.053
Sweden0.52
Indonesia0.675
Saudi Arabia0.499
Chile0.625
Philippines0.687
Colombia0.604
Argentina0.507
Total100

*Weights as of December 16, 2019

The main difference between the USDX and the trade-weighted U.S. dollar index is the basket of currencies used and their relative weights.The trade-weighted index includes countries from all over the world, including some developing countries.

Given how global trade is developing, this index is probably a better reflection of the U.S. dollar’s value across the globe.

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