EM Dollar Index vs Emerging Markets (EEM)
The Trade-Weighted EM US Dollar Index (FRED:DTWEXEMEGS) tracks the dollar against EM currencies, base 2006=100. The index peaked near 129 in January 2025 and stood at 121 by October 2025.
Also known as: EM Dollar Index (EM dollar, emerging market dollar) · Emerging Markets (EEM) (ETF_EEM, emerging markets, EM)
Why This Comparison Matters
The Trade-Weighted EM US Dollar Index (FRED:DTWEXEMEGS) tracks the dollar against EM currencies, base 2006=100. The index peaked near 129 in January 2025 and stood at 121 by October 2025. EEM, the iShares MSCI Emerging Markets ETF, returned 33.98 percent in 2025 and 2.79 percent YTD through mid-April 2026. The pair is the cleanest expression of the EM dollar-funding channel.
Why this specific pair is watched
DTWEXEMEGS captures the foreign-exchange value of the US dollar against the basket of emerging-market currencies, weighted by goods and services trade flows, and is published daily by the Federal Reserve in the H.10 release. EEM tracks the MSCI Emerging Markets investable universe, with assets near 19 billion dollars and broad exposure to China, India, Taiwan, South Korea, and Brazil. The pair is monitored at the Morgan Stanley, Goldman Sachs, and JP Morgan emerging-markets strategy desks because the inverse relationship between the dollar and EM equity is one of the most robust cross-asset macro signals in the post-2010 record. The IMF World Economic Outlook database also tracks the relationship as a primary input to its EM external-financing assessments.
The macro thesis the pair tests is the EM dollar-funding channel. Federal Reserve research (IFDP 1258) documents that dollar appreciations produce contractions in EM GDP, investment, and credit to the private sector, while raising EM sovereign risk. The mechanism runs through dollar-denominated EM debt (roughly 80 percent of EM external debt is dollar-denominated), through commodity-export channels (most EM exports priced in dollars), and through capital-flow reversals when DXY rallies. The DTWEXEMEGS-EEM pair compresses these multiple channels into a single inverse relationship that has historically held with rolling-12-month correlations near -0.7. The pair also anchors the IMF Article IV surveillance reports for EM economies, which routinely cite dollar-cycle sensitivity as a primary external risk.
The 2025 dollar-decline regime
The 2025 dollar decline was the sharpest annual drop in the broad dollar index in eight years, and DTWEXEMEGS fell from a January 2025 peak near 129 to roughly 121 by October 2025, a 6 percent move that translated into substantial EM tailwinds. EEM returned 33.98 percent on price for full-year 2025, with one-year total return reaching 51.70 percent against the long-run inception annual return of 9.95 percent. The 2025 outperformance was the largest single-year dollar-driven EM rally in the
Conditional Forward Response (Tail Events)
How Emerging Markets (EEM) has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in EM Dollar Index. Computed from 1,235 aligned daily observations ending .
Following these triggers, Emerging Markets (EEM) falls 0.13% on average over the next 5 sessions, versus an unconditional baseline of +0.16%. 124 qualifying events; Emerging Markets (EEM) closed positive in 43% of them.
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Frequently Asked Questions
How are emerging markets correlated with the US dollar?+
The rolling 12-month correlation between the DTWEXEMEGS broad EM dollar index and EEM emerging-markets ETF returns has averaged -0.65 since 2006, with stress-window (VIX above 30) correlations tightening to -0.75 and calm-period correlations weakening to -0.45. The inverse relationship runs through three channels: dollar-denominated EM debt service costs, dollar-priced commodity export revenues, and capital flows from EM-dedicated and crossover funds. The relationship temporarily breaks during acute safe-haven dollar bids (2008 GFC) when capital-flow reversal dominates the other channels, but it has reasserted within roughly six months of every disruption since 2006.
Why did EEM perform so well in 2025?+
The 2025 EEM rally of 33.98 percent on price (51.70 percent one-year total return) was driven primarily by the sharpest annual decline in the broad dollar index in eight years. DTWEXEMEGS fell from a January 2025 peak near 129 to roughly 121 by October 2025, a 6 percent move that translated through the dollar-debt-service, commodity-export, and capital-flow channels. China's heavy weight in EEM also benefited from confirming earnings acceleration above 15 percent in 2025. The combination produced one of the largest single-year dollar-driven EM rallies in the FRED record outside 2003-2004 and the post-March 9, 2009 recovery.
What is the current level of the EM dollar index?+
DTWEXEMEGS peaked at approximately 129 in January 2025 and stood near 121 in October 2025, a 6 percent decline. The series has continued to drift lower into early 2026 as the dollar-decline regime extended. The index is published daily by the Federal Reserve in the H.10 release, with January 2006 as the base period at 100. The most recent prior peaks were 129 in October 2022 (Fed tightening cycle) and 121 in January 2016 (post-China-devaluation period), making the current decline phase comparable in magnitude to the post-2022 retracement that began in October 2022.
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Data sourced from FRED, CoinGecko, CBOE, and other providers. This page is for informational purposes only and does not constitute financial advice. Past performance does not guarantee future results.