Exchange Rate Index Definition

May 5th, 2008 | economics -

An exchange rate index is a way of measuring the performance of a currency against a basket of other currencies.

US Dollar Index

For example, the US dollar index measures the US dollar against 6 main currencies.

1. Euro (EUR) – 12 members of EU.
2. Japanes Yen (JPY)
3. Pound Sterling (GBP) -
4. Loonie (CAD) – Canada
5. Kronas (SEK) – Sweden
6. Francs (CHF) – Switzerland

These are weighted. This means the exchange rate movements also depend on the relative importance of trade with these currencies. Therefore an appreciation against the Swedist Krona, only accounts for a small % of US trade. A devaluation against the Euro will have much more impact and weighting.

The Decline in the US Dollar Index.

The US dollar index is currently 77.5 (link). The index was set at 100 in 2000. Therefore, there has been a 22.5% decrease in the value of the dollar since 2000.

See: Reasons for falling dollar