A currency pair is a name used in the forex market to denote the valuation of one currency relative to another. Listed in pairs, the first part of the pair denotes the base currency, while the second part denotes the quote currency.
Currency pairs compare the value of one currency to another in this case, the base currency against the quote currency. The rating given indicates how much of the quote currency is needed to purchase one unit of the base currency.
Trading of currency pairs forms one of the biggest marketplaces with a daily turnover of more than $4 trillion. The forex market, in this case, is the largest and the most liquid in the world, given the buying and selling of currency pairs that take place on a daily basis.
Transactions in the forex market involve the purchase of one currency and sale of another, even though the currency pair always acts as a single unit. The high turnover in the forex market stems from the buying and selling that involves the major currency pairs in the world.
The major currency pairs, in this case, denote currencies of the biggest economies in the world.
Most Traded Currency Pairs
EUR/USD
The EUR/USD is one of the most traded and liquid currency pairs in the world, as it covers some of the biggest economies in the world. In the EUR/USD pair, the EUR acts as the base currency as the representation of the European Union, the biggest economic block in the world. The USD, which is the quote currency, in the pair, is the currency for the United States of America, arguably the biggest single economy in the world.
The EUR/USD is the most liquid currency pair in the world, given the amount of buying and selling that takes place.
When denoted as EUR/USD= 1.2100, it means that 1.2100 U.S dollars are needed in exchange for one Euro.
GBP/USD
GBP/USD is another highly traded currency pair as it pits the British Pound (GBP), representing the U.K economy as the base currency. The U.S Dollar, on the other hand, acts as the quote currency in the pair. The currency pair tells the amount of U.S dollar required to buy one British pound.
Often referred to as the cable, the currency pair is one of the most widely traded. Price movements in the currency pair are affected by economic and political factors in the U.K and the U.S
USD/JPY
The USD/JPY is another widely traded currency pair that compares the value of the U.S dollar against the Japanese Yen. The currency pair, in this case, shows the amount of yen required to purchase one U.S dollar. For instance, when quoted as USD/JPY 108, it means 108 Japanese Yen are needed to buy one U.S dollar.
The USD/JPY acts as a safe-haven currency, given that the Japanese Yen also acts as a currency for storing value. Price movements in the currency pair are mostly affected by policy measures of the two country’s central bank’s as well as geopolitical developments around the globe. The currency has a negative correlation with gold prices.
USD/CHF
USD/CHF is a currency pair that seeks to compare the value of the U.S dollar with that of the Swiss Franc. In this case, the quote indicates the amount of Swiss Francs one would need to buy one U.S dollar. When trading, the pair one is said to be trading the Swissie.
The value of the USD/CHF is influenced by factors that affect the U.S and Switzerland economy. They include interest rates, employment data, as well as GDP. The currency pair has a negative correlation with the EUR/USD and GBP/USD currency pair.
USD/CAD
The USD/CAD is a currency pair in which the U.S dollar is the base currency, while the Canadian currency is the quote currency. The quote given indicates the amount of Canadian dollars needed to buy one U.S dollar. In the forex market, the currency pair is often referred to as the ‘loonie.’
The currency pair quote is influenced by factors that affect the U.S dollar as well as the Canadian dollar. Such factors include interest rate differential as well as employment data and GDP. Canada being a mining company, prices of oil influence the value of the Canadian dollar, consequently affecting the pair quote.
AUD/USD
AUD/USD is a currency pair in which the quote indicates the amount of U.S dollar required to buy one Australian dollar. The currency pair is also known as the Aussie in the forex market. The pair quote price is influenced by among other things geographical factors such as prices of commodities,
The fact that China is Australia biggest customer also sees business environment significantly affect the price of the Aussie, consequently the pair. The currency pair has a negative correlation with the USD/CAD, USD/CHF, and USD/JPY currency pairs.
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