Besides our known and loved USDX you might be surprised to learn that there is another, one more US dollar index.
It was created by the Federal Reserve of the United States in 1998 and it is called trade-weighted USD index. It is implemented to this day in order to measure the weight and compatibility of the US goods when compared to goods from other countries.
And why exactly do we need two USD indices? And what is the main difference between them? Well, the main difference is that very basket of major currencies – there is no basket and no limitations to the numbers of the currencies in the Fed’s index. Well, the only thing that limits the numbers is the current numbers of existing currencies, I guess.
Trade-weighted US index is not widely used by international traders and investors as it was created in order to keep up with US trading. Although given the current situation around the world it seems that trade-weighted USDX is the better index for looking at USD than the regular USDX.
In case you want to follow the development of the index you can find it here.