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.

(Click on image to enlarge)

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>).  

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