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Foreign Exchange

Indices: Dow Jones pioneers first euro index

The tool will track the euro against major trading currencies and provide an important non-central bank benchmark

Dow Jones unveiled plans last month to launch a new index that will track exchange rates against the euro every 15 minutes.

"The use of the euro in the capital markets has inspired Dow Jones to create an index that tracks the euro," John Prestbo, editor of Dow Jones Indexes, told the fourth biannual capital markets conference hosted by Hypothekenbank in Essen in June. "The US dollar is the major component," he said.

Dow Jones Indexes has developed more than 3,000 indices and is best known for its equity products. Currency indices are expected to be a major new market in FX according to investment banks.

The proposed index has a 40% weighting to trade flows between any eurozone country and non-euro country such as the US and Japan, 20% to the money supply in the non-euro country, and 20% in its GDP. 

"Most currency indexes are trade weighted, reflecting trade flows between the two countries," said Prestbo. "We decided that in the European region, oil from the North Sea and Russia, for example, tended to elevate some countries to too high a level, so we added money supply and GDP. We wanted to keep the index consistent."

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