A chart of the Sterling Trade-Weighted Index Incomplete
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This is a chart of the GBP (sterling) trade-weighted index (black), along with the US dollar index (green), and the GBPUSD pair.
This GBP trade-weighted index is a Basket Composition of UK's currency that puts emphasis on the relative importance of the trading partners of the United Kingdom by percentage. This makes more sense, as a country will be more effected by a trading partner with a greater trade (import and export) weight (ex: 60% trade wight) than a trading partner with a trading weight of 1%.
Uses:
- Get a TRUE view of what a currency is doing, and why GBPUSD goes up or down.
- Know better the direction of the GBP currency
- Gauge market sentiment of the UK better
- See risk-aversion and risk-on modes better
- Get a better macroeconomic view of a particular currency
- Assess strength/weakness correlations of one currency versus another, such as GBPUSD.
- If GBP TWI index (black) is in an up trend, and DXY (green) is in a down trend, then you can know for sure that the best thing to do is to buy GBPUSD. The strength of each shall heighten the effect.
- See when a currency pair is undervalued in the short term.
Notes:
These are only the 4 most important currencies by percentage that are in the chart of this GBP trade-weighted index. Other important trading partners are China, Norway and Canada. I did not include them in here because I did not find their recent trading partner percentage; also, China is not completely a floating currency.
If you are interested in TWIs of currencies, central bank websites provide us with this information for free.
This GBP trade-weighted index is a Basket Composition of UK's currency that puts emphasis on the relative importance of the trading partners of the United Kingdom by percentage. This makes more sense, as a country will be more effected by a trading partner with a greater trade (import and export) weight (ex: 60% trade wight) than a trading partner with a trading weight of 1%.
Uses:
- Get a TRUE view of what a currency is doing, and why GBPUSD goes up or down.
- Know better the direction of the GBP currency
- Gauge market sentiment of the UK better
- See risk-aversion and risk-on modes better
- Get a better macroeconomic view of a particular currency
- Assess strength/weakness correlations of one currency versus another, such as GBPUSD.
- If GBP TWI index (black) is in an up trend, and DXY (green) is in a down trend, then you can know for sure that the best thing to do is to buy GBPUSD. The strength of each shall heighten the effect.
- See when a currency pair is undervalued in the short term.
Notes:
These are only the 4 most important currencies by percentage that are in the chart of this GBP trade-weighted index. Other important trading partners are China, Norway and Canada. I did not include them in here because I did not find their recent trading partner percentage; also, China is not completely a floating currency.
If you are interested in TWIs of currencies, central bank websites provide us with this information for free.
Nota
IvanLabrie recently posted an average-weighted index of the sterling.Nota
IvanLabrie recently made an average-weighted index, which can be found below. Although central banks have trade-weighted indicies, only places like TradingView gives us the ability to plot charts of them (if we can make them).An example of trade-weighted and average-weighted indicies can be found in equities:
DJIA = an average-weighted index
S&P500 = a trade-weighted index
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