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The Major Currency Pairs: An Overview

Introduction to Currency Pairs

A currency pair shows the relative value of two currencies. It’s displayed by concatenating the ISO 4217 code of the two currencies with a slash (“/”) mark. The currency shown to the left of the slash is the base currency, also called the transaction currency. The currency shown to the right of the slash is the quote currency, also called the counter currency. The number following the pair indicate the value of the quote currency against the base currency.

For example, EUR/USD 1.3212 means that one euro is valued at $1.3212.

The Major Currency Pairs

The major currency pairs are those showing the relative values of the world’s hard currencies against the U.S. dollar. The major currency pairs are usually typified by their stability and liquidity. They also make up the largest part of the forex market, by some estimates as much as 85 percent.

The four major currency pairs are:

– U.S. dollar against the euro, EUR/USD
– U.S. dollar against the British pound, GBP/USD
– Japanese yen against the U.S. dollar, USD/JPY
– Swiss franc against the U.S. dollar, USD/CHF

EUR/USD

The U.S. dollar and the euro are the two most widely traded currencies. Paired together, they can account for anywhere between a quarter to a third of the entire forex market. They can be a good pair for beginner forex traders because the two currencies move slowly against each other. Their spread, that is the fee paid to the broker, is also lowest on this pair. This value of this pairing is related to the price crude oil.

GBP/USD

GBP/USD is the second most popularly traded pair. While they are both hard currencies, they can get volatile relative to one another. For this reason, this isn’t the best pair for beginner currency traders. This pairing is very sensitive to sudden economic news from either country.

USD/JPY

Japan’s economy is based heavily on exports, and this has come to include its currency as well. Japan usually has low interest rates, which makes its currency quite cheap. This pairing is greatly affected by Japan’s trade imbalance with the United States and the price of crude oil.

USD/CHF

Switzerland’s banking laws and gold reserves have made its franc a safe haven currency. However, this pairing is the most illiquid of the major currency pairs. Its movement tends to track inversely to the EUR/USD pair.

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