A currency pair is a quotation for two different currencies. It is the amount you would pay in one currency for a unit of another currency. For instance, when a trader is quoted EUR/USD 1.13 it means that the trader can exchange 1 Euro and receive 1.13 US Dollars.
When a currency’s value changes, it changes relative to another currency. If the EUR/USD quotation goes from 1.13 today to 1.15 tomorrow it means that the Euro has appreciated relative to the US dollar, or that the US dollar has depreciated relative to the Euro because it will cost more US dollars to purchase 1 Euro.
This page covers some of the major currency pairs traded worldwide and what traders of all levels need to know to trade them. You can also view live currency rates and stay up to date on market movements with our currency market news and analysis.
What are the major currency pairs?
The definition of ‘major currency pairs’ will differ among traders, but most will include the four most popular pairs to trade - EUR/USD, USD/JPY, GBP/USD and USD/CHF. ‘Commodity currencies’ and ‘cross pairs’ are also categorized as majors. Below we explore the major currency pair categories.
Major currency pairs
The most traded currency pairs are listed below. They represent some of the world’s largest economies and are traded in high volumes. Higher volumes tend to lead to smaller spreads.
The EUR/USD (Euro/US Dollar) nicknamed ‘Fiber’ is the world’s most traded currency pair commanding 23% of FX transactions in 2016. The Euro and the US Dollar represent the two largest economies in the world, the US Economy and the European Union.
The popularity of the EUR/USD ensures that it trades at tight spreads. High volumes lead to reduced price differences between the bid and offer.
The USD/JPY (US Dollar/Japanese Yen) is also known as ‘The Ninja’ and is the second most traded currency pair. The Yen is often used by carry traders who borrow the Yen and invest it into higher yielding currencies. The Bank of Japan has had to combat low inflation and growth for many years, and as a result it has a very low interest rate.
The USD/JPY is also traded in extremely high volumes which leads to low bid-ask spreads and lots of liquidity.
The Yen is also known as a safe-haven currency amongst traders.
The GBP/USD (Pound Sterling/US Dollar) is nicknamed ‘Cable’ due to the undersea cables that used to carry bid and ask quotes across the Atlantic Ocean.
This major forex pair shares similarities with the EUR/USD. Both are highly correlated because the United Kingdom’s economy is tied to the European Union.
Traders enjoy tight bid-ask spreads on the GBP/USD due to its high liquidity.
The USD/CHF (US Dollar/Swiss Franc), nicknamed ‘Swissy’, derives its popularity from the Swiss Franc’s safe-haven status. When risk/volatility enters the market, traders bid up the Swiss Franc because the Swiss economy is seen to have lower risk.
Commodity currencies like the Aussie, Loonie and Kiwi are forex pairs that are greatly influenced by commodity prices.
The AUD/USD (Australian Dollar/US Dollar), or ‘Aussie’, is greatly affected by mining commodities, farming of beef, wool and wheat. The Aussie also tends to do well when China does well because the two countries are big trading partners. The Reserve Bank of Australia (RBA) also has major influence over the AUD/USD.
The NZD/USD (New Zealand Dollar/US Dollar), also known as the ‘Kiwi’, is heavily influenced by data releases of agriculture and tourism.
As with all currencies, these central banks (Federal Reserve and Reserve Bank of New Zealand) shouldn’t be underestimated. Changes to monetary policy from either of them can lead to NZD/USD volatility.
Cross currency pairs do not include the US Dollar. Historically, currencies had to be exchanged into US dollars before they could be exchanged into other currencies. The popular cross pairs are the EUR/GBP, EUR/JPY and the EUR/CHF.
This cross pair explores the relationship between the UK economy and the European Union. Forecasting the EUR/GBP can be difficult because the economies are interlinked.
Some traders believe EUR/JPY is easier to forecast than USD/JPY because the US dollar and the Japanese Yen are both seen as safe-havens. This makes the EUR/JPY a popular cross currency pair.
Like the EUR/JPY, the EUR/CHF gains its popularity from the fact that the Franc is a safe-haven currency. The EUR/CHF is also therefore seen as a popular currency cross pair during times of market volatility.
What affects the rates of major currency pairs?
The main fundamentals that affect currency pairs are changes in overnight interest rates by central banks, economic data and politics.
Interest Rates - Central banks have it in their mandate to maintain monetary and financial stability. They do this by influencing interest rates. When a central bank increases its overnight interest rate it causes increased demand for that currency because investors and traders seek the higher yield which in turn appreciates the currency relative to other currencies.
Economic Data - Economic releases are reports that give traders a glimpse into the performance of a nation’s economy. Important economic data that influences currency rates include CPI (inflation) data, Nonfarm payrolls (employment data), gross domestic product (GDP), retails sales, purchasing managers index (PMI) and others.
Politics - Trade wars, elections, corruption scandals and changes in policies introduce instability which reflects in the forex market. The government has the power to affect the economy which can boost or depreciate a currency’s relative value.
Volatility - Traders usually take smaller positions on the more volatile currencies and bigger positions on less volatile positions. Volatility can strike any of these pairs at any time due to abrupt changes in interest rates, drastic changes to the economic outlook, or political instability. It is important to follow these markets dedicated pages above for up to date news and analysis.
Tips for trading currency pairs
Forex traders utilize discipline and consistency in their trading. Here’s some expert tips to kickstart your forex trading:
- If you’re new to forex trading, choose liquid currency pairs like the EUR/USD or the USD/JPY. Then analyze the fundamentals and the technicals until you are familiar with what moves the currency pairs.
- Determining the appropriate leverage is of key importance when trading currencies. Lots of beginner forex traders wipe out their accounts because they use excess leverage.
- A forex trading strategy can help to ensure traders are consistent and disciplined. This can lead to profitability and deter loss causing behavior. Read our traits of successful traders guide to avoid the number one mistake traders make.
- Choose the best trading time frame to suit your needs. You can choose from swing-trading, day-trading or scalping depending on which one appeals to you most.
- Use our freetrading forecasts on major currencies to stay ahead of the forex market. And for daily updates on major forex pairs, view our currency news and technical analysis articles.