A Broader, More Representative Approach
The countries whose currencies are included in the BBDXY basket represent 81% of the overall trade with the United States. By another measure, the currencies included in the Bloomberg Dollar Spot Index comprise 93.7% of the $5.3 trillion traded each day in the foreign exchange market. By comparison, the six components of the ICE U.S. Dollar Index represent only 42% of the trade with the U.S. and barely 80% of the daily FX volume. From our perspective, when investors ask themselves what the U.S. dollar is worth, we believe this more comprehensive assessment of the dollar provides a more intuitive approach.
Bloomberg Dollar Spot Index (BBDXY) vs. ICE U.S. Dollar Index (DXY)
Even after the most recent rebalance, BBDXY remains more broadly differentiated than DXY. In our view, a dynamic measure of the U.S. dollar provides a more representative approach to measuring the role the U.S. dollar plays in the global economy.
1Source: Bloomberg, WisdomTree, as of 12/31/13.
2Source: Bank for International Settlements (BIS), Triennial Survey, April 2013.
3Sources: Bloomberg, WisdomTree, as of 12/31/13.
Important Risks Related to this Article
Investments in emerging, offshore or frontier markets are generally less liquid and less efficient than investments in developed markets and are subject to additional risks, such as risks of adverse governmental regulation and intervention or political developments. Foreign investing involves special risks, such as risk of loss from currency fluctuation or political or economic uncertainty. Investments in currency involve additional special risks, such as credit risk and interest rate fluctuations. Diversification does not eliminate the risk of experiencing investment losses.