Trade-weighted index

The trade-weighted index (TWI) is expected to reach 121.7 in 2025, an increase of 4.2% from the previous year. This growth is underpinned by the persistent strength of the US dollar, driven by robust domestic economic performance and recent political developments. Despite current economic indicators such as steady GDP growth and elevated interest rates, the landscape is characterized by notable uncertainty regarding pending policy changes, their potential impact, and the resulting volatility in global markets.

Between 2020 and 2025, the TWI exhibited an overall upward trend, rising from 108.8 in 2020 to 121.7 in 2025. This period was marked by significant volatility and several episodes of abrupt change, notably an 8.3% increase in 2022 to 115.1, following global market uncertainty and capital inflows to the US as a safe haven. The Federal Reserve's aggressive monetary tightening in response to persistent inflation offered higher returns on US-denominated assets, attracting foreign investment and strengthening the dollar. The index moderated throughout 2023, declining slightly by 0.5% as global economic growth pressured capital flows away from the United States, but rebounded with a 2.0% rise in 2024, reflecting renewed investor confidence in the US economy amid shifting monetary policy expectations and resilient economic indicators.

Macroeconomic trends with strong influence on the TWI during this period included relative GDP performance, persistent inflation differentials, and capital mobility. The economic performance of key trading partners, particularly the Euro area, China, Canada, Mexico, and Japan, which collectively compose over two-thirds of the TWI weighting, influenced both the demand for and valuation of the US dollar. Divergent economic recoveries and trade patterns, combined with geopolitical tensions and shifting expectations regarding trade policy, contributed to capital movements favoring US assets. Technological innovation and safe-haven demand further amplified the dollar's position globally, especially during episodes of international economic or political uncertainty.

Over the five years to 2025, the trade-weighted index broadly trended upward, underpinned by resilient US economic growth, higher interest rates relative to other advanced economies, and heightened demand for the US dollar as a safe haven during episodes of volatility. However, persistent imbalances in fiscal policy, the evolving composition of global trade and capital flows, and periodic shifts in US trade policy presented sources of uncertainty. While the TWI demonstrated robust growth and moderate volatility overall, its trajectory was contingent on a complex interplay of macroeconomic and policy variables shaping global currency markets.