The trade-weighted US dollar index, also known as the broad index, was a measure of the value of the United States dollar relative to other world currencies. It was a trade weighted index that improved on the older U.S. Dollar Index by incorporating more currencies and yearly rebalancing. The base index value was 100 in January 2006.
History 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.
Included currencies In the older U.S. Dollar Index, a significant weight was 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 As U. S. trade expanded over time, the weights in that index went unchanged and became out of date.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, which included a bigger collection of currencies than the US dollar index. The regions included were:
Europe (euro countries) Canada Japan Mexico China United Kingdom Taiwan Korea Singapore
Hong Kong Malaysia Brazil Switzerland Thailand Philippines Australia Vietnam (added February 4, 2019) Indonesia
India Israel Saudi Arabia Russia Sweden Argentina Venezuela (removed February 4, 2019) Chile Colombia
Mathematical formulation
Based on nominal exchange rates 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). The index value at time is given by the formula:
.
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 is the weight of currency at time and
Based on real exchange rates 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:
.
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 data
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."
This table shows some highs and lows of the Trade Weighted U.S. Dollar Index: Broad [TWEXB] from 2002 to April 2017.
+ Sample of trade weighted averages of foreign exchange value USD (highs/lows ) DMY 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
Series Discontinued TWEXB Discontinued after December 31, 2019 This series was discontinued after December 31, 2019.<ref
The series Nominal Broad U.S. Dollar Index (DTWEXBGS) is the suggested substitute, DTWEXBGS.
References
External links Trade weighted dollar indexes at St. Louis Fed