What Is the Trade-Weighted U.S. Dollar Index?
Aside from the commonly used U.S. Dollar Index (USDX), there's another version developed by the Federal Reserve: the Trade-Weighted U.S. Dollar Index, also known as the Nominal Broad U.S. Dollar Index.
This version is widely used by economists, analysts, and central banks—not just because it sounds fancy, but because it offers a more accurate representation of the dollar’s global value.
Why Was It Created?
The Federal Reserve introduced this index in 1998, aiming to reflect the evolving nature of U.S. trade—especially after the euro replaced several European currencies. The goal was to improve upon the older, privately-owned ICE USDX by including:
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More currencies
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Weights based on actual trade volumes
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Annual updates to reflect changing global trade dynamics
By considering how much the U.S. trades with each country, this index offers a more realistic picture of the dollar's international competitiveness.
How It Works
The Trade-Weighted Dollar Index tracks the value of the U.S. dollar against a basket of 26 foreign currencies. What makes it unique is that each currency is weighted based on how much the U.S. trades with that country.
For example, because the U.S. trades more with China than with Switzerland, the Chinese yuan carries more weight than the Swiss franc.
The index is calculated using a geometric average of the exchange rates, with each rate adjusted by its respective trade weight.
Current Currency Weights (as of Dec 16, 2019)
Here’s a snapshot of the major countries included in the index and their relative weights:
| Country | Weight (%) |
|---|---|
| Eurozone | 18.947 |
| China | 15.835 |
| Canada | 13.384 |
| Mexico | 13.524 |
| Japan | 6.272 |
| United Kingdom | 5.306 |
| India | 2.874 |
| Korea | 3.322 |
| Brazil | 1.979 |
| Taiwan | 1.950 |
| … | … |
| Total | 100.000 |
This broad selection of currencies—covering both developed and emerging markets—means the index reflects roughly 90% of total U.S. trade.
How to Interpret the Index
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Rising index → The U.S. dollar is strengthening relative to trading partners.
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Imports become cheaper; exports become more expensive.
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Falling index → The U.S. dollar is weakening.
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Exports become more competitive; imports cost more.
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Movements in the index can signal shifts in the dollar’s strength and affect international trade flows, inflation, and economic policy decisions.
Key Differences: Trade-Weighted Index vs. USDX
| Feature | Trade-Weighted Dollar Index (Fed) | U.S. Dollar Index (USDX) |
|---|---|---|
| Number of currencies | 26 | 6 |
| Currency types | Developed & emerging markets | Only developed markets |
| Weighting method | Based on U.S. trade volume | Fixed weights |
| Updates | Annually (weights), daily (value) | Rarely updated |
| Coverage | Global | Mostly Europe-focused |
While the USDX is more popular among retail forex traders, the Trade-Weighted Index offers a broader and more accurate view of the dollar’s global strength—especially as world trade continues to diversify.
Where to Find It
You can track the index directly on the Federal Reserve Economic Data (FRED) website:
Final Thoughts
The Trade-Weighted U.S. Dollar Index is an essential tool for anyone who wants to understand the true global value of the dollar. It reflects real-world trade patterns and is widely used in economic analysis, policymaking, and even long-term investing strategies.
If you're serious about forex or macroeconomics, it’s definitely worth keeping an eye on.