The trade-weighted US dollar index, also known as the broad index, is a measure of the value of the United States dollar relative to other world currencies. It is a trade weighted index that improves on the older U.S. Dollar Index by incorporating more currencies and yearly rebalancing. The base index value is 100 in January 1997.[1] As the U.S. Dollar gains value the index increases.
The trade-weighted dollar index was introduced in 1998 for two primary reasons. The first was the introduction of the euro, which eliminated several of the currencies in the standard dollar index; the second was to keep pace with new developments in US trade.[2]
Included currenciesEdit
In the older U.S. Dollar Index, a significant weight is given to the euro, because most U. S. Trade in 1973 was with European countries. As U. S. trade expanded over time, the weights in that index went unchanged and became out of date. To more accurately reflect the strength of the dollar relative to other world currencies, the Federal Reserve created the trade-weighted US dollar index,[3] which includes a bigger collection of currencies than the US dollar index. The regions included are:
Europe (euro countries)
Canada
Japan
Mexico
China
United Kingdom
Taiwan
Korea
Singapore
Hong Kong
Malaysia
Brazil
Switzerland
Thailand
Philippines
Australia
Indonesia
India
Israel
Saudi Arabia
Russia
Sweden
Argentina
Venezuela
Chile
Colombia
Mathematical formulationEdit
Based on nominal exchange ratesEdit
The index is computed as the geometric mean of the bilateral exchange rates of the included currencies. The weight assigned to the value of each currency in the calculation is based on trade data, and is updated annually (the value of the index itself is updated much more frequently than the weightings).[2] The index value at time is given by the formula:[2]
.
where
and are the values of the index at times and
is the number of currencies in the index at time
and are the amount of currency required to purchase one U.S. Dollar at times and [4]
is the weight of currency at time
and
Based on real exchange ratesEdit
The real exchange rate is a more informative measure of the dollar's worth since it accounts for countries whose currencies experience differing rates of inflation from that of the United States. This is compensated for by adjusting the exchange rates in the formula using the consumer price index of the respective countries. In this more general case the index value is given by:[2]
.
where
and are the values of the US consumer price index at times and
and and are the values of the country 's consumer price index at times and
Federal Reserve Bank of St. Louis dataEdit
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" with detailed information. The "broad currency index includes the Euro Area, Canada, Japan, Mexico, China, United Kingdom, Taiwan, Korea, Singapore, Hong Kong, Malaysia, Brazil, Switzerland, Thailand, Philippines, Australia, Indonesia, India, Israel, Saudi Arabia, Russia, Sweden, Argentina, Venezuela, Chile and Colombia."[5]
This table shows some highs and lows of the Trade Weighted U.S. Dollar Index: Broad [TWEXB] from 2002 to April 2017.[5]
Sample of trade weighted averages of foreign exchange value USD (highs/lows ) DMY [5]
20-02-2002
09-04-2008
23-07-2011
27-07-2011
18-03-2015
03-06-2015
17-02-2016
04-05-2016
26-08-2016
23-11-2016
04-01-2017
19-04-2017
129.3639
95.6084
102.1682
94.0323
117.4927
115.5347
123.7823
118.6478
120.2955
127.2899
128.5246
124.0479
ReferencesEdit
^"Trade Weighted U.S. Dollar Index". Retrieved 2 November 2018.
^ abcdLoretan, Mico (Winter 2005). "Indexes of the Foreign Exchange Value of the Dollar" (PDF). Federal Reserve Bulletin. 91. doi:10.17016/bulletin.2005.91-1-1.
^Beschwitz, Bastian von; Collins, Christopher G.; Datta, Deepa D. (2019-01-15). "Revisions to the Federal Reserve Dollar Indexes". {{cite journal}}: Cite journal requires |journal= (help)
^ abcTrade Weighted U.S. Dollar Index: Broad [TWEXB], Board of Governors of the Federal Reserve System (US), Federal Reserve Bank of St. Louis (FRED), April 27, 2017, retrieved April 28, 2017
External linksEdit
Trade weighted dollar indexes at St. Louis Fed
August 28, 2023
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The trade weighted US dollar index also known as the broad index is a measure of the value of the United States dollar relative to other world currencies It is a trade weighted index that improves on the older U S Dollar Index by incorporating more currencies and yearly rebalancing The base index value is 100 in January 1997 1 As the U S Dollar gains value the index increases Trade weighted US dollar index USD South Korean won USD Japanese Yen USD Canadian dollar USD Mexican peso USD Euro USD Chinese Renminbi USD British Pound Sterling Contents 1 History 2 Included currencies 3 Mathematical formulation 3 1 Based on nominal exchange rates 3 2 Based on real exchange rates 4 Federal Reserve Bank of St Louis data 5 References 6 External linksHistory EditThe trade weighted dollar index was introduced in 1998 for two primary reasons The first was the introduction of the euro which eliminated several of the currencies in the standard dollar index the second was to keep pace with new developments in US trade 2 Included currencies EditIn the older U S Dollar Index a significant weight is given to the euro because most U S Trade in 1973 was with European countries As U S trade expanded over time the weights in that index went unchanged and became out of date To more accurately reflect the strength of the dollar relative to other world currencies the Federal Reserve created the trade weighted US dollar index 3 which includes a bigger collection of currencies than the US dollar index The regions included are Europe euro countries Canada Japan Mexico China United Kingdom Taiwan Korea Singapore Hong Kong Malaysia Brazil Switzerland Thailand Philippines Australia Indonesia India Israel Saudi Arabia Russia Sweden Argentina Venezuela Chile Colombia Broad Index weightsMathematical formulation EditBased on nominal exchange rates Edit The index is computed as the geometric mean of the bilateral exchange rates of the included currencies The weight assigned to the value of each currency in the calculation is based on trade data and is updated annually the value of the index itself is updated much more frequently than the weightings 2 The index value at time t displaystyle t is given by the formula 2 I t I t 1 j 1 N t e j t e j t 1 w j t displaystyle I t I t 1 times prod j 1 N t left frac e j t e j t 1 right w j t where I t displaystyle I t and I t 1 displaystyle I t 1 are the values of the index at times t displaystyle t and t 1 displaystyle t 1 N t displaystyle N t is the number of currencies in the index at time t displaystyle t e j t displaystyle e j t and e j t 1 displaystyle e j t 1 are the amount of currency j displaystyle j required to purchase one U S Dollar at times t displaystyle t and t 1 displaystyle t 1 4 w j t displaystyle w j t is the weight of currency j displaystyle j at time t displaystyle t and j 1 N t w j t 1 displaystyle sum j 1 N t w j t 1 Based on real exchange rates Edit The real exchange rate is a more informative measure of the dollar s worth since it accounts for countries whose currencies experience differing rates of inflation from that of the United States This is compensated for by adjusting the exchange rates in the formula using the consumer price index of the respective countries In this more general case the index value is given by 2 I t I t 1 j 1 N t e j t p t p j t e j t 1 p t 1 p j t 1 w j t displaystyle I t I t 1 times prod j 1 N t left frac e j t cdot frac p t p j t e j t 1 cdot frac p t 1 p j t 1 right w j t where p t displaystyle p t and p t 1 displaystyle p t 1 are the values of the US consumer price index at times t displaystyle t and t 1 displaystyle t 1 and p j t displaystyle p j t and p j t 1 displaystyle p j t 1 are the values of the country j displaystyle j s consumer price index at times t displaystyle t and t 1 displaystyle t 1 Federal Reserve Bank of St Louis data EditThe 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 with detailed information The broad currency index includes the Euro Area Canada Japan Mexico China United Kingdom Taiwan Korea Singapore Hong Kong Malaysia Brazil Switzerland Thailand Philippines Australia Indonesia India Israel Saudi Arabia Russia Sweden Argentina Venezuela Chile and Colombia 5 This table shows some highs and lows of the Trade Weighted U S Dollar Index Broad TWEXB from 2002 to April 2017 5 Sample of trade weighted averages of foreign exchange value USD highs lows DMY 5 20 02 2002 09 04 2008 23 07 2011 27 07 2011 18 03 2015 03 06 2015 17 02 2016 04 05 2016 26 08 2016 23 11 2016 04 01 2017 19 04 2017129 3639 95 6084 102 1682 94 0323 117 4927 115 5347 123 7823 118 6478 120 2955 127 2899 128 5246 124 0479References Edit Trade Weighted U S Dollar Index Retrieved 2 November 2018 a b c d Loretan Mico Winter 2005 Indexes of the Foreign Exchange Value of the Dollar PDF Federal Reserve Bulletin 91 doi 10 17016 bulletin 2005 91 1 1 The Fed Foreign Exchange Rates H 10 Nominal Real Indexes www federalreserve gov Beschwitz Bastian von Collins Christopher G Datta Deepa D 2019 01 15 Revisions to the Federal Reserve Dollar Indexes a href Template Cite journal html title Template Cite journal cite journal a Cite journal requires journal help a b c Trade Weighted U S Dollar Index Broad TWEXB Board of Governors of the Federal Reserve System US Federal Reserve Bank of St Louis FRED April 27 2017 retrieved April 28 2017External links EditTrade weighted dollar indexes at St Louis Fed Retrieved from https en wikipedia org w index php title Trade weighted US dollar index amp oldid 1168628224, wikipedia, wiki, book, books, library,