Major Currency Pairs Explained

Currency pairs represent the exchange rate between two currencies. Understanding the most traded pairs helps you make informed decisions whether you're traveling, conducting business internationally, or monitoring global economic trends.

What Are Currency Pairs?

A currency pair shows how much of one currency (the quote currency) is needed to purchase one unit of another currency (the base currency). For example, if USD/EUR is 0.92, it means one US Dollar equals 0.92 Euros.

Currency pairs are categorized into three groups:

Trading Volume: The foreign exchange market sees over $7.5 trillion in daily trading volume. The major pairs account for approximately 75% of all forex transactions, with EUR/USD alone representing about 24% of all trades.

The Seven Major Currency Pairs

EUR/USD - Euro / US Dollar

Nickname: "The Fiber" or "Euro"

Trading Volume: The most traded currency pair in the world, accounting for approximately 24% of all forex transactions.

What Drives This Pair:

  • Economic Data: GDP growth, employment figures, and manufacturing data from both the Eurozone and United States significantly impact this pair. Strong US economic data typically strengthens the dollar against the euro.
  • Central Bank Policy: Decisions by the Federal Reserve and European Central Bank regarding interest rates are the primary drivers. Higher interest rates typically attract capital and strengthen the currency.
  • Political Events: European Union politics, including Brexit aftermath, Italian debt concerns, and Greek financial issues, create volatility. US political uncertainty also affects the pair.
  • Safe Haven Flows: During global uncertainty, investors often move to US dollars, weakening EUR/USD.

Typical Daily Range: 80-120 pips (0.0080-0.0120)

Best Trading Times: London and New York market overlap (8 AM - 12 PM EST) sees highest liquidity and tightest spreads.

Historical Context: The euro was introduced in 1999 at 1.18 USD. It reached an all-time high of 1.60 in 2008 and a low near 0.82 in 2000. The pair has been relatively range-bound between 1.05 and 1.25 in recent years.

USD/JPY - US Dollar / Japanese Yen

Nickname: "The Gopher" or "Ninja"

Trading Volume: The second most traded pair, representing about 13.5% of forex market share.

What Drives This Pair:

  • Interest Rate Differential: Japan has maintained near-zero interest rates for decades, making the yen attractive for carry trades (borrowing yen at low rates to invest in higher-yielding currencies). When US rates rise, USD/JPY typically increases.
  • Risk Sentiment: The yen is considered a safe haven currency. During market turmoil, investors buy yen, causing USD/JPY to fall. In risk-on environments, the pair rises.
  • Bank of Japan Intervention: The BoJ occasionally intervenes in currency markets to weaken the yen when it becomes too strong, as a strong yen hurts Japan's export-dependent economy.
  • US Treasury Yields: Japanese investors are major buyers of US Treasury bonds. Rising US yields attract Japanese capital, supporting the dollar.
  • Natural Disasters: Earthquakes and tsunamis in Japan can cause yen strengthening as insurance companies and citizens repatriate funds.

Typical Daily Range: 50-80 pips

Characteristics: Known for smooth, trending price action compared to other pairs. Tends to follow technical levels well, making it popular with technical traders.

Historical Context: The pair traded above 240 in the 1980s before falling to below 80 in 2011. Recent range has been between 100 and 150, influenced heavily by diverging central bank policies.

GBP/USD - British Pound / US Dollar

Nickname: "The Cable"

Trading Volume: The third most traded pair at approximately 9.5% of daily forex volume.

Name Origin: Called "Cable" because exchange rates were historically transmitted between London and New York via transatlantic cable.

What Drives This Pair:

  • Brexit Impact: Since the 2016 referendum, Brexit developments and UK-EU trade relations significantly affect sterling. Positive Brexit news strengthens the pound; negative news weakens it.
  • Bank of England Policy: Interest rate decisions and quantitative easing programs by the BoE are major drivers. The UK tends to follow US policy but with its own timing.
  • Economic Data: UK employment, inflation (especially important given the BoE's inflation targeting), and retail sales data move the pair substantially.
  • Political Stability: UK political developments, elections, and government changes create significant volatility in sterling.
  • Correlation with EUR/USD: The pound often moves in tandem with the euro against the dollar due to geographic proximity and economic ties.

Typical Daily Range: 100-150 pips (highly volatile)

Characteristics: Known as one of the most volatile major pairs. Can experience sudden, sharp moves based on news. Requires wider stop losses than other majors.

Historical Context: Traded as high as 2.11 in 2007, fell to 1.35 during the 2008 financial crisis, and dropped to 1.14 after the Brexit vote in 2016. Currently trades in a broad range between 1.20 and 1.40.

USD/CHF - US Dollar / Swiss Franc

Nickname: "The Swissie"

Trading Volume: Accounts for about 4% of forex transactions.

What Drives This Pair:

  • Safe Haven Status: Switzerland's political neutrality, strong banking system, and stable economy make the franc a premier safe haven. During crises, CHF strengthens (USD/CHF falls).
  • Swiss National Bank Policy: The SNB has a history of currency intervention to prevent excessive franc strength, which hurts Swiss exports. In 2015, the SNB shocked markets by removing the 1.20 EUR/CHF floor, causing massive volatility.
  • Correlation with EUR/USD: USD/CHF typically moves inversely to EUR/USD since Switzerland and the Eurozone are closely tied economically.
  • Gold Prices: Switzerland's historical gold reserves and the franc's former gold backing create a relationship between gold and CHF. Rising gold often correlates with franc strength.

Typical Daily Range: 60-90 pips

Characteristics: Generally less volatile than GBP/USD or AUD/USD. Offers tight spreads and good liquidity. Often used as a proxy for safe haven flows.

AUD/USD - Australian Dollar / US Dollar

Nickname: "The Aussie"

Trading Volume: Represents approximately 5% of daily forex volume.

What Drives This Pair:

  • Commodity Prices: Australia is a major exporter of commodities (iron ore, coal, natural gas, gold). Rising commodity prices typically strengthen AUD. The pair closely tracks iron ore prices especially.
  • China's Economy: As Australia's largest trading partner, Chinese economic data and policy significantly impact the Aussie dollar. Strong Chinese growth supports AUD.
  • Interest Rate Differential: Australia has historically offered higher interest rates than the US, making AUD attractive for carry trades. However, rates have converged in recent years.
  • Risk Sentiment: AUD is considered a "risk-on" currency. It strengthens when investors are optimistic about global growth and weakens during risk-off periods.
  • Reserve Bank of Australia: RBA rate decisions and commentary on the economic outlook drive the currency.

Typical Daily Range: 60-100 pips

Characteristics: Highly correlated with commodity prices and Asian market sentiment. Best liquidity during Asian trading session.

Historical Context: Traded near parity (1.00) with USD in 2011-2013 but has since weakened to a range of 0.60-0.80 as commodity prices fell and rate differentials narrowed.

USD/CAD - US Dollar / Canadian Dollar

Nickname: "The Loonie"

Trading Volume: About 4% of global forex transactions.

Name Origin: The Canadian dollar is called the "loonie" after the loon bird depicted on the one-dollar coin.

What Drives This Pair:

  • Oil Prices: Canada is a major oil exporter (third-largest reserves globally). Rising oil prices strengthen CAD, causing USD/CAD to fall. The correlation is approximately -0.75, one of the strongest in forex.
  • US-Canada Trade: The countries are each other's largest trading partners. US economic strength affects Canadian exports and employment.
  • Interest Rate Differential: Bank of Canada and Federal Reserve policies create interest rate differentials that drive capital flows and the exchange rate.
  • NAFTA/USMCA: Trade agreement developments impact economic outlook and currency strength.
  • Housing Market: Canada's overheated housing market and high household debt levels periodically create CAD volatility.

Typical Daily Range: 60-90 pips

Characteristics: Strong inverse correlation with oil prices. Often moves in opposite direction to AUD/USD since both are commodity currencies but react differently to market conditions.

Historical Context: Traded above 1.60 in 2002 (weak CAD), reached near parity in 2011-2012 (strong CAD), then rose to 1.45+ when oil crashed in 2015-2016.

NZD/USD - New Zealand Dollar / US Dollar

Nickname: "The Kiwi"

Trading Volume: Smallest of the majors at about 1.7% of forex volume.

What Drives This Pair:

  • Dairy Prices: New Zealand is the world's largest dairy exporter. Global dairy prices (especially milk powder) significantly impact NZD.
  • Australian Economy: NZD/USD closely tracks AUD/USD due to geographic proximity and similar economic structures. Australia is NZ's largest trading partner.
  • Reserve Bank of New Zealand: RBNZ interest rate decisions drive the currency. New Zealand has historically offered higher rates, making it attractive for carry traders.
  • Chinese Demand: China is a major importer of New Zealand dairy and meat products. Chinese economic strength supports NZD.
  • Risk Sentiment: Like AUD, NZD is a "risk-on" currency that strengthens when investors are optimistic about global growth.

Typical Daily Range: 60-100 pips

Characteristics: Higher volatility than most majors due to New Zealand's smaller economy. Lower liquidity means wider spreads. Best trading conditions during Asian session.

Important Currency Crosses

While not technically "major pairs" (as they don't include USD), these crosses are heavily traded and important for travelers and businesses:

EUR/GBP - Euro / British Pound

The most traded currency cross. Brexit developments dominate this pair. When the pound weakens relative to the euro, EUR/GBP rises. Important for UK-Eurozone trade and travel.

EUR/JPY - Euro / Japanese Yen

A favorite among carry traders due to Japan's low interest rates versus European rates. Sensitive to global risk sentiment. Tends to be highly volatile.

GBP/JPY - British Pound / Japanese Yen

Known as one of the most volatile major crosses. Popular with traders seeking large price movements. Daily ranges often exceed 150 pips.

AUD/NZD - Australian Dollar / New Zealand Dollar

The trans-Tasman pair. Reflects relative economic performance of Australia versus New Zealand. Less volatile than other pairs as economies are similar.

Trading Tip: Currency crosses can offer better opportunities than trading against the USD when the dollar is range-bound. However, they typically have wider spreads and less liquidity than major pairs.

Factors Affecting All Currency Pairs

While each pair has unique drivers, several factors impact all forex markets:

Correlations Between Currency Pairs

Understanding how pairs move relative to each other helps with diversification and risk management:

Positive Correlations (Move Together):

Negative Correlations (Move Opposite):

Important Note: Correlations change over time based on economic conditions. What's correlated today may not be in six months. Always check current correlation data before making assumptions.

Practical Applications for Different Users

For Travelers

Understanding your relevant currency pair helps you time your exchange. If you're American traveling to Europe, monitor EUR/USD. A higher rate means your dollars buy more euros. Consider exchanging when the rate favors you, but don't try to time the market perfectly for small amounts.

For Businesses

Companies with international exposure should monitor relevant pairs constantly. A US company buying goods from Japan watches USD/JPY. When the dollar strengthens (USD/JPY rises), imports become cheaper. Businesses often use forward contracts or options to hedge currency risk.

For Investors

International investors must consider currency risk alongside investment returns. A European investor in US stocks may gain 10% on the investment but lose 5% if EUR/USD rises, reducing total returns. Currency-hedged funds eliminate this risk but add cost.

For Expatriates

People earning in one currency while supporting families in another face ongoing currency exposure. Regular monitoring of relevant pairs and use of forward contracts for large transfers can save thousands annually.

Check Live Currency Rates →

How to Track Currency Pairs

Several tools help you monitor exchange rates:

Conclusion

Understanding major currency pairs is essential for anyone dealing with foreign exchange, whether for travel, business, or investment. Each pair has unique characteristics and drivers:

By understanding what drives these pairs and how they interrelate, you can make more informed decisions about when to exchange currency, how to manage international business risk, and how to interpret global economic trends.

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