New Summary Measures of the Foreign Exchange Value of the Dollar

The multilateral trade-weighted index of the foreign exchange value of the U.S. dollar against the currencies of the other countries in the Group of Ten (G-10), developed at the Federal Reserve Board in 1971, has played an important role in staff analysis of foreign influences on the U.S. economy for more than twenty-five years. However, changes in international trading relationships and in the structure of international financial markets have led to increased interest in the currencies of U.S. trading partners outside the G-10 countries. Furthermore, the establishment of the European Economic and Monetary Union (EMU) is bringing about significant changes inside the G-10 countries, with the euro, which will be introduced in January 1999, ultimately replacing five of the G-10 currencies. As a result, members of the Board's staff have developed several new indexes of the dollar's overall foreign exchange value.