US Dollar Index – Is it Valid?

QUESTION: You said the Dollar Index is not valid because it was based on trade 30 years ago. I seem to recall you had your own index. Would you explain the difference and how has this performed lately?

Thank you

GF

ANSWER: The index we use is based, not on trade, but capital flows. To reflect the world rather than just a microcosm, we include 14 currencies compared to the trade-skewed Dollar Index that was crafted back in March 1973, which includes:

    1. Euro (EUR), 57.6% weight
    2. Japanese yen (JPY) 13.6% weight
    3. Pound sterling (GBP), 11.9% weight
    4. Canadian dollar (CAD), 9.1% weight
    5. Swedish krona (SEK), 4.2% weight
    6. Swiss franc (CHF) 3.6% weight

The Dollar Index we created is based on capital flows rather than trade. Our base year of 1900 equals 100. The countries included:

    1. Australia Dollar
    2. Brazil Real
    3. British Pound
    4. Canadian Dollar
    5. China Yuan
    6. Europe Euro
    7. Japanese Yen
    8. Mexico Peso
    9. Norway Krone
    10. Russia Ruble
    11. Singapore Dollar
    12. South Korea Won
    13. Swiss Franc
    14. Thailand  Baht

    We can see that the dollar is consolidating. When we look at the dollar from a broader perspective, the trend becomes much clearer.