The Bannockburn’s World Currency Index (BWCI) is a GDP-weighted currency basket representing the currencies of the top 12 economies, with the eurozone counted as one.
The US is the world’s largest economy and the dollar’s share
of the index is almost 31%. China is the second-largest economy and has a
nearly 22% weight.
The euro is next with a 19% weight, followed by Japan with
about a 7.5% weight. After that, the weights drop off to less than 5% for the
other members.
It has risen, meaning that the foreign currencies have risen
against the dollar, by about 5.4% since forging a bottom late last year.
It has recouped about half of what it lost since peaking in
June 2021.
Because of the dollar’s large role, it is more of a
confirmation indicator than leader in trend changes.
Yesterday, the 50-day moving average crossed above the
200-day (“golden cross) for the first time since August 2021. By definition,
this simple cross-over model does not catch tops or bottoms but catches the
meat of a trend. It is not prone to whipsaws and because of the nature of a
basket, it trends better than its individual components. That said, the moving
averages have crossed for nearly all the G10 currencies. The 5/200 day moving
averages are crossing for the Australian dollar today, leaving the Canadian
dollar, as the only exception and it is not even close.
The Bannockburn World Currency Index can be found on Bloomberg (BWCI <Index>). It is composed of one-month forward rates and the implied interest rate (funding cost) is also tracked (BWCII <Index>).
Disclaimer
Reviewed by Marc Chandler
on
January 27, 2023
Rating:
