The Effective Exchange Rate (EER) is an index that measures the value of a currency compared to a weighted group of other foreign currencies. These currencies are weighted based on how much trade the home country does with those specific nations.

Key points about the EER:

• It provides a broader view of a currency’s competitiveness than just looking at one single currency pair.
• It is often called the trade-weighted exchange rate.
• An increase in the EER means the currency is becoming stronger, which can make a country’s exports more expensive and less competitive abroad.
• Central banks use this index to track external economic health and to help set exchange rate policies.