Great Graphic: The Dollar Index and the Real TWI

This Great Graphic, constructed on Bloomberg, shows two time series.  The white line shows the Federal Reserve's real broad trade weighted index.  It is updated on a monthly basis.  It edged up in June after falling in April and May. Of note, the real broad trade weighted dollar average was higher in Q2 (93.69) than in Q1 (93.42).  

The   yellow line shows the more commonly followed Dollar Index.  It is not adjusted for inflation.  It does not include two of the US main trading partners, Mexico and China.  It is heavily weighted toward Europe.  The euro accounts for 57.6% of the index, sterling 11.9%, Swedish krona 4.2% and the Swiss franc 3.6%.  The largest US trading partner, Canada, accounts for 9.1% of the index.  The yen accounts for the remaining 13.6%. 

Despite these differences, as the chart shows, the two have tracked each other on a monthly basis, much better than one might have expected, on this side of the Great Financial Crisis.  In part, it suggests that inflation differentials have not been particularly significant.  It also suggests the small group of major countries represented in the Dollar Index does fair job of capturing the trends among a wider range of trading partners. 

Great Graphic: The Dollar Index and the Real TWI Great Graphic:  The Dollar Index and the Real TWI Reviewed by Marc Chandler on July 01, 2015 Rating: 5
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