Forex Flash: Trade-weighted exchange index explains EUR/USD –Goldman Sachs

The Euro’s exchange rate against the US Dollar reached a 13-month high at the end of January 2013, achieving a level of USD 1.3570. This local peak needs to be placed in perspective: since its inception in January 1999, the Dollar value of the Euro has ranged from 0.82 to 1.60.

Conceptually, “the trade-weighted exchange rate index (TWI) should be a more informative measure of the macroeconomic impact of exchange rate developments. Broadly speaking, since the middle of last year the TWI has followed a similar evolution to that of the bilateral EUR / USD rate. However, in recent months – and especially in January – the TWI has appreciated significantly more, driven by a weakening of the Japanese Yen and Sterling.” explains the Economics Research Team at Goldman Sachs.