US Dollar Index V. The Fed’s Trade Weighted Dollar Index
Submitted by Shaza
I was listening to David Skarica on www.howestreet.com this week and downloaded two charts which I think should be considered when looking at the US Dollar.
Chart A is the USD Index weighted against a basket of currencies: EUR, JPY, GBP, CAD, CHF and SEK. As you can see, this is virtually a chart weighted against mainly the Eurozone. That is why the USD looks so ‘good’ against its fiat peers---because the Euro area is so sickly.
Now take a look at Chart B.
Chart B is The Trade Weighted US dollar Index, also known as the broad index. By the way, the FED uses this one, not the USD Index. It is a measure of the value of the US Dollar relative to 30 world currencies. The list of currencies is found here:
As you can see, the USD compared against 30 other currencies is not doing so well. In fact, at times it is almost inverse! No wonder the FED is so scared of GOLD. Do not trust Bernanke, he looks at these trade weighted charts and completely understands why gold is doing so well. He only hopes that that the little investor will keep their eye on the USD Index weighted against the sickly Euro area.
Hat tip to DS for pointing this out. You can hear his podcast on howestreet.com.