Currency Strength Meter

The formula

gₓ = rate₀(x) ÷ rate₁(x)  (gross appreciation of x vs EUR)
strengthₓ = mean over y ≠ x of (gₓ ÷ gᵧ − 1)

Every currency is also compared to the euro in the ECB table. A currency's total appreciation relative to the euro over time can be simply calculated as the initial exchange rate divided by the final exchange rate. If fewer units of the currency exist for each euro then the currency has appreciated. Similarly, if we divide one currency's appreciation value by another currency's appreciation value this will give us their "cross" movement. We could average this cross movement value against the other seven currencies to provide us with a single strength index that does not favor the use of either the euro or any other base. In addition, the euro is treated equally as all other currencies, with an implied rate of 1.

A worked example

Suppose during a week in which the U.S. dollar rose by 1% relative to the euro, while the yen fell by 1% relative to the euro, and the remaining five major currencies stayed flat. The dollar's move against the basket averages its gains over the euro, the yen and the five flat currencies, so it comes out strongly positive. The yen's average is strongly negative. The euro and the flat currencies land near the middle, slightly negative because they lost ground to the dollar but gained on the yen. Reading the ranking top to bottom, you can see that a rising USD/JPY that week was dollar strength meeting yen weakness, both legs moving the same way, rather than a one-sided move. This is primarily what the meter is intended to do: break down each currency pair into its component currencies.

Using it well

The ranking is most useful the moment after a surprise: when a currency jumps to the top or bottom of the list, the economic calendar usually explains why, a hot inflation print, a hawkish central bank, a risk-off session that lifts the dollar and franc together. From there, the converter and per-pair pages give you the exact rate and one-year context for whichever cross the meter flagged. What the meter cannot do is tell you the move will continue: it is a daily-resolution rear-view mirror on relative performance, not a forecast, and on an official once-a-day fix it will always trail the live market by design.