GEAB index – the Euro is falling and the US dollar is climbing
As our team has explained in many GEAB issues, the traditional Dollar Index (used by the financial markets) is an unreliable indicator for forecasting US Dollar developments. In fact, it’s founded on a basket of currencies which is no longer representative, either of the world’s major monetary balances or of United States trade. This basket of currencies is in fact a “small Western club” even more illegitimate today than the G8.
Of six currencies used in the FED $ index (USDX), we find the Swedish crown, the Pound Sterling, the Swiss franc and the Canadian dollar which appear irrelevant to our team since they are either marginal currencies at international level (Canadian dollar), or currencies of the United States secondary business partners (Swiss franc, Pound sterling), or both (Swedish crown).
The two other currencies are the Euro and the Yen which, on the contrary, correspond to these two criteria which we have decided to retain to calculate the GEAB $ Index. As we have being doing since December 2010, we will publish this index (based at 0 in January 2006) in every third GEAB issue from now on. The other currencies included in this index, in addition to the Euro and the Yen, are the Yuan and theReal.
To us the GEAB $ Index thus appears to be a simple indicator and representative of the
American currency’s development in value at world level which incorporates the decentralized dimension of the changing world. Henceforth, LEAP will also regularly publish the GEAB € Index to give a synthetic and reliable account of the state the Euroland currency.
In May 2013, the GEAB $ Index stands at -16 (i.e. a fall of 16 % in the US dollar’s value since January 2006 compared to the basket of the four world currencies used). It climbed during the last quarter and, at the beginning of May 2013, our index has confirmed the resumption of the US dollar’s bullish trend of the last two years, primarily due to the yen’s strong fall as a result of Japan’s aggressive monetary policy.
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