The euro currency index measures the value of the euro relative to a basket of other major global currencies. As the official currency shared by 19 European Union member states, the euro plays a pivotal role in financial markets and the global economy. This guide will examine the history, composition, importance, and key factors impacting the euro currency index.


Adopted in 1999 and launched in 2002, the euro is now the second most traded currency in foreign exchange markets after the U.S. dollar. The euro was created as an accounting currency for the European Union, establishing price stability across borders and increasing economic integration among Eurozone countries.

The euro currency index tracks changes in the external value of the euro against a weighted basket of currencies from major trading partners. The index provides a broad measure of the overall strength or weakness of the euro. Given the eurozone’s significance as an economic bloc, the performance of the shared currency offers an important indicator for global financial markets.

This article will explore the background, methodology, trading implications, and driving factors behind the euro currency index. Key topics include:

  • History of the euro currency index
  • Composition and weightings
  • Uses and importance of the index
  • Factors impacting the euro currency index
  • Eurozone economic performance
  • Monetary policy of the European Central Bank
  • U.S. dollar performance
  • Trade flows and terms of trade
  • Financial stability and political risks
  • Trading strategies based on the euro index

By understanding what moves the euro currency index, traders and investors can gain critical insights into opportunities and risks when trading EUR cross pairs.

History of the Euro Currency Index

Following the launch of the euro currency in January 1999, the European Central Bank began publishing a trade-weighted index measuring the external value of the euro against global currencies in 1999. This original euro currency index tracked the euro’s movements versus the currencies of the eurozone’s 13 largest trading partners.

Over the next two decades, the methodology was refined to capture the evolving nature of Europe’s trade flows and key currency relationships. The index was rebalanced multiple times, including most recently in January 2021.

Some key milestones in the history of the euro currency index include:

  • January 1999 – Original euro currency index published tracking 13 trade partner currencies.
  • January 2005 – First index reweighting to account for accelerated EU integration and the admission of 10 new members.
  • January 2010 – Number of component currencies expanded from 13 to 20.
  • January 2021 – Index expanded to 24 trade partner currencies with new weightings.

Today, the euro currency index provides a weighted measure of the euro against a broad basket of 24 global currencies from important trade partners. The index offers an authoritative gauge of the euro’s external value over time.

Composition and Weightings

The euro currency index is a geometrically weighted index that tracks the changes in the euro’s value against a basket of 24 currencies from countries that are important trading partners for the eurozone.

The composition and weightings draw on data from the European Central Bank on the eurozone’s international trade flows. The index aims to capture the currencies of key trade partners, applying greater weight to those with which the eurozone has more extensive trade.

The 24 currencies currently included in the euro currency index are:

  • U.S. dollar (USD): 30%
  • Chinese yuan (CNY): 17%
  • Japanese yen (JPY): 9%
  • Pound sterling (GBP): 9%
  • Swiss franc (CHF): 9%
  • Canadian dollar (CAD): 5%
  • Australian dollar (AUD): 4%
  • Korean won (KRW): 4%
  • Swedish krona (SEK): 2%
  • Singapore dollar (SGD): 2%
  • Hong Kong dollar (HKD): 2%
  • Norwegian krone (NOK): 2%
  • Thai baht (THB): 1%
  • Polish zloty (PLN): 1%
  • Romanian leu (RON): 1%
  • Danish krone (DKK): 1%
  • Russian ruble (RUB): 1%
  • Turkish lira (TRY): 1%
  • Czech koruna (CZK): 1%
  • Hungarian forint (HUF): 1%
  • Brazilian real (BRL): 1%
  • Mexican peso (MXN): 1%
  • Indian rupee (INR): 1%
  • South African rand (ZAR): 1%

The U.S. dollar receives the heaviest weighting at 30% due to the extensive trading relationship between the U.S. and eurozone. Other top weighted currencies are the Chinese yuan, Japanese yen, British pound sterling, and Swiss franc. These weightings are adjusted periodically based on shifts in trade flows.

Uses and Importance of the Euro Currency Index

The euro currency index serves several key functions:

  • Measure of euro strength or weakness – The index provides an authoritative gauge of changes in the external value of the euro over time. Traders look to the index to determine if the euro is gaining or losing ground against major counterparts.
  • Insights into EUR cross rates – The performance of the broad index offers signals about likely movements in EUR cross pairs like EUR/USD, EUR/JPY and EUR/GBP that make up its components.
  • Monitor competitiveness – Changes in the external value of the euro impact the trade competitiveness of Eurozone exports. A weaker euro makes exports more competitive, while a stronger euro makes them less attractive.
  • Central bank policy tool – The ECB can use the broad nominal euro index as an indicator when setting monetary policy aimed at ensuring price stability in the Eurozone.
  • Trading and hedging tool – Traders utilize the euro index for gauging opportunities in the euro and hedging positions in euro-denominated assets. The euro currency index can inform strategies across spot, forward and options markets.

Understanding the forces that cause the shared currency to appreciate or depreciate against major counterparts is essential for anyone trading euro cross pairs or hedging euro assets.

Factors Impacting the Euro Currency Index

Many complex dynamics influence the valuation of the euro currency index. Here are some of the most significant fundamental drivers:

Eurozone Economic Performance

The health of the underlying Eurozone economy is a major long-term factor impacting the euro. Stronger growth and productivity tend to correlate with a stronger shared currency over time. Meanwhile, sluggish output, high unemployment, stagnating wages, and fiscal instability in the bloc can weigh on the euro.

Key markers like Eurozone GDP, inflation, unemployment, manufacturing and services data offer insights into the overall robustness of the euro area economy. Signs of accelerating or deteriorating economic performance often precede euro appreciation or depreciation.

Monetary Policy of the ECB

As the central bank responsible for managing monetary policy for Eurozone countries, the policy directives and forward guidance from the European Central Bank have a material influence on the euro.

When the ECB maintains relatively hawkish policies like interest rate hikes it can drive up the currency’s value. On the other hand, dovish policies like rate cuts, expanded quantitative easing and other asset purchases can place downward pressure on the euro.

Paying attention to ECB meeting statements and speeches by officials allows traders to anticipate near-term euro moves based on shifting policy outlooks.

U.S. Dollar Performance

Given the U.S. dollar’s 30% weighting in the basket, its swings against other major currencies have a significant impact on the broader euro index. A stronger dollar tends to drag the euro lower, while dollar weakness supports a higher euro.

Factors like diverging interest rates, changing risk appetites, safe haven flows, and data surprises that alter USD outlooks also feed indirectly into euro currency index moves. Tracking the Dollar Index (DXY) can offer leading signals for the direction of the euro index.

Trade Flows and Terms of Trade

The competitiveness of Eurozone exports is tied closely to the external value of the euro. When the euroDepreciates, Eurozone exports become cheaper and more competitive internationally, while euro appreciation makes exports more expensive.

Shifting terms of trade and trade flows with major partners like China and the U.S. influence euro valuation over longer horizons. The euro tends to fall versus currencies from key trade partners when Eurozone exports slow.

Financial Stability and Political Risks

As a currency shared by 19 different countries, the euro is sensitive to financial and political risks that could undermine the currency union. Events like sovereign debt crises, bank fragility, rising populism and political tensions in the bloc can spur risk aversion and weigh on the euro index.

Monitoring bond spreads, interbank lending, and political developments across the Eurozone provides useful signals about potential currency impacts.

Trading Strategies Based on the Euro Index

The euro currency index provides an invaluable reference point for informing trading strategies across euro cross pairs. Here are some examples of potential opportunities:

  • Mean Reversion – When the euro index diverges significantly from long-term averages, fading the extremes through mean reversion strategies across EUR pairs can be profitable.
  • Range Trading – The euro index often fluctuates within multi-month ranges. Trading the range edges can produce favorable risk-reward outcomes.
  • Divergence Trading – When the broad euro diverges from the performance of a specific cross rate like EUR/USD, the divergence may present trade ideas if likely to revert.
  • Correlation Analysis – Comparing historical correlations between the euro index and EUR crosses can uncover pairs poised for outsized moves.
  • Intermarket Analysis – Rotations between the euro, DXY and other currency majors can signal opportunities to capitalize on intermarket linkages.
  • Momentum and Breakouts – Trended moves in the euro index can be used to time entries in the direction of momentum across associated EUR pairs.


As the shared currency for a significant portion of the global economy, the performance of the euro currency index provides valuable insights into opportunities across euro cross pairs and European assets more broadly.

By understanding the composition, drivers, and historical trading patterns of the index, traders can formulate strategies for effectively navigating euro exposure. From monetary policy shifts and economic trends to financial stability risks and political dynamics, the multifaceted factors that influence the euro index offer useful signals for trading EUR pairs.

While no forecasting tool is perfect, following the ebbs and flows of the euro currency index over time can aid in leading indicators, risk management, and technical analysis across euro markets.