Do currency pairs (EURUSD) effect the corresponding countries currency index (EXY) or do currency indexes effect currency pairs?
Let’s say for the sake of argument that currency pairs move as a result of people trading goods and services between countries, and indices move as a result of people investing in that particular country’s currency. Doesn’t that mean that a currency pair can cause a country’s corresponding currency index to move, and a country’s currency index can also cause a corresponding currency pair to move? So in this case, couldn’t we say that it is vitally important when trading say EURUSD to watch both the EXY and DXY?
I want to understand the relationship between currency pairs and the corresponding country’s currency index. Can anyone provide any wisdom, knowledge, experience, and insight on this?