Bloomberg Dollar Spot Index (BBDXY) measures the success of ten global currencies against the US dollar.
Its composition is updated annually and includes a diverse range of currencies that are essential for global trade and liquidity.
Bloomberg claims that their index offers a better measure of the US dollar than other dollar indices because they do not update their composition and are made up of only a few currencies with concentrated weights.
The BBDXY Index data series begins on December 31, 2004, with a starting level of 1000.
Each currency in the basket is assigned a weight based on its share of foreign commerce and FX liquidity on an annual basis.
A Better Measure of the U.S. Dollar?
Let us compare the Bloomberg Dollar Spot Index (BBDXY) to the commonly used ICE Dollar Index. (DXY).
BBDXY is a better representation.
The Bloomberg Dollar Spot Index measures a more representative basket of currencies by taking into account global currency market liquidity and the United States’ trading partners.
BBDXY is more diversified.
BBDXY is more dynamic
Unlike the DXY, which has a fixed composition, the BBDXY is dynamic, with an annual rebalancing procedure that takes into account the changing state of currency markets.
As a consequence, the index contains important currencies (such as the Australian dollar) that outperform the Swedish krona in terms of liquidity and trading.
Here is a timeline of how the Bloomberg Dollar Index has rebalanced over time.
Take note of how currencies such as the Singapore dollar (SGD) and the Brazilian real (BRL) used to be members of the cool society before being kicked out and replaced.
BBDXY doesn’t mess around. It loves to keep things interesting!
In comparison, the currencies in the US Dollar Index (USDX, DXY, DX) never change.
Which Currencies Are Part of the Bloomberg Dollar Spot Index?
Here is the most recent composition of the Bloomberg Dollar Spot Index compared to the previous year.
How the Bloomberg Dollar Spot Index Determines Which Currencies to Include
The index is rebalanced once a year to reflect fresh data from:
- The Federal Reserve’s annual survey of key trading partners versus the US dollar.
- The Bank of International Settlements’ triennial assessment of the world’s most liquid currencies. (BIS).
- Identify the top 20 currencies in terms of trading activity versus the underlying currency. For the U.S. dollar, this is as defined by the Federal Reserve in its Broad Index of the Foreign Exchange Value of the Dollar.
- Identify the top 20 currencies from the Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. Specific information about foreign exchange turnover can be found here.
- Select the top 10 currencies of both lists, but exclude any pegged currencies. For example, currencies pegged to the U.S. dollar (such as the Hong Kong dollar or Saudi riyal) are removed for the Bloomberg Dollar Spot Index.
- Assign a preliminary weight for each currency based on its trade weight and liquidity weight.
- Cap the exposure of Chinese renminbi and remove smaller currency positions, defined as any position that has a weight of less than 2%.
- Voila! BBDXY calculation complete!
Every year, the rebalanced target weights are applied after the end of the last U.S. trading day in December.
Here’s a diagram that depicts the preceding process:
How to View the Bloomberg Dollar Spot Index
Bloomberg subscribers can access the Bloomberg Dollar Spot Index by entering BDXY into the Bloomberg Terminal®.
If you cannot afford the $20,000 annual charge for a Bloomberg Terminal subscription, you can view the live BBDXY quote on Bloomberg’s website for free.
On the BBDXY page of Bloomberg, you’ll see a live quote that appears like this: