The sterling exchange rate index (ERI) is a measure of the overall change in the trade-weighted exchange value of sterling, calculated by weighting together bilateral exchange rates. It is designed to measure changes in the price competitiveness of traded goods and services, and so the weights reflect trade flows in manufactured goods and services.
Using the USA as an example, the weights for the US dollar in the sterling ERI are based on:
- competition in the UK domestic market from imports from the USA
- competition between UK exports and US products in the USA
- competition between UK and US exports in third-country markets.
The methodology for constructing sterling ERI is explained more fully in the article: