Its composition is updated annually and represents a diverse set of currencies that are important from a global trade and liquidity perspective.

Bloomberg Dollar Index Chart

 

Since other dollar indices (ahem…DXY) do not update their composition and are comprised of only a handful of currencies with concentrated weights, Bloomberg claims their index provides a better measure of the U.S. dollar.

BBDXY vs. DXY

The BBDXY Index data starts from Dec 31, 2004, with a base level of 1000.

Each currency in the basket and its weight is determined annually based on its share of international trade and FX liquidity.

Currencies That Are Trading Partners and Liquidity

A Better Measure of the U.S. Dollar?

Let’s see how the Bloomberg Dollar Spot Index (BBDXY) differs from the widely used ICE Dollar Index (DXY).

BBDXY is more representative.

The Bloomberg Dollar Spot Index tracks a more representative basket of currencies by considering global currency market liquidity and trading partners of the U.S.

Bloomberg Dollar Spot Index Basket

BBDXY is more diversified.

Unlike DXY, the Bloomberg Dollar Spot Index is NOT dominated by the euro.

ICE US Dollar Index

It also includes major emerging market currencies such as the Indian rupee, Korean won, Mexican peso, and Chinese renminbi which are all major trading partners of the U.S.

Bloomberg Dollar Spot Index

BBDXY is more dynamic.

Unlike the DXY’s static composition, BBDXY is dynamic, with an annual rebalancing process that captures the changing state of currency markets.

This results in the index that includes important currencies (like the Australian dollar) that rank higher in liquidity and trading versus the Swedish krona.

Why does USDX include Sweden? Because the index still livin’ in the past! The ICE U.S. Dollar Index measures the value of the U.S. Dollar against a basket of currencies of the top six trading partners of the United States, as measured in 1973! This included the Euro zone, Japan, the United Kingdom, Canada, Sweden, and Switzerland.

Here’s a snapshot of how the Bloomberg Dollar Index has rebalanced over the years.

Bloomberg Dollar Spot Index Rebalancing

Notice how currencies like the Singaporean dollar (SGD) and Brazilian real (BRL) used to be part of the cool club but eventually got the boot and were replaced.

BBDXY don’t play around. It likes to keep it fresh!

This is in contrast to the U.S. Dollar Index (USDX, DXY, DX) where the currencies never change. Maybe they should call themselves the “Boring Dollar Index”. 😂