Definition
Cross Currency PairA cross currency pair, or cross, is a pair that does not include the US dollar, such as EUR/GBP, GBP/JPY or AUD/NZD.
Example
EUR/JPY is a cross. Assuming EUR/USD at 1.0800 and USD/JPY at 150.00, its implied rate is 1.0800 × 150.00 = 162.00.
In detail
Because the US dollar is on one side of most global currency transactions, pairs without it get a special name. Historically, converting euros to yen meant two trades: euros into dollars, then dollars into yen. A cross rate lets you do that in one step, and its price is closely anchored to those two dollar pairs.
Popular crosses include:
- Euro crosses: EUR/GBP, EUR/JPY, EUR/CHF
- Yen crosses: GBP/JPY, AUD/JPY, CAD/JPY
- Commodity-currency crosses: AUD/NZD, AUD/CAD
How the price is derived
A cross is linked to its dollar legs. The calculation depends on how each leg is quoted:
- If USD is the quote in one leg and the base in the other, multiply: EUR/JPY = EUR/USD × USD/JPY
- If USD is the quote in both legs, divide: EUR/GBP = EUR/USD ÷ GBP/USD
For example, assume EUR/USD = 1.0850 and GBP/USD = 1.2700 (illustrative). EUR/GBP = 1.0850 ÷ 1.2700 = about 0.8543.
If a quoted cross drifts too far from this implied value, arbitrage traders quickly push it back.
Why it matters
Crosses let traders express a view on two non-dollar economies directly, for instance comparing euro-area and UK interest rate outlooks through EUR/GBP, without dollar news dominating the trade.
They also come with trade-offs. Many crosses have wider spreads than the majors and can be more volatile. Yen crosses in particular are known for large swings during periods of market stress. When calculating pip values, remember that profit is earned in the cross's quote currency, which may need converting to your account currency.
The Currency Correlation lesson shows how crosses relate to the majors that form them.
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Related terms
- Currency PairA currency pair is the quotation of one currency against another, such as EUR/USD, showing how much of the second currency buys one unit of the first.
- Major Currency PairsMajor currency pairs are the most heavily traded pairs, each combining the US dollar with another leading currency such as the euro, yen or pound.
- Exotic Currency PairAn exotic currency pair combines a major currency with the currency of a smaller or emerging economy, such as USD/TRY, USD/MXN or EUR/ZAR.
- ArbitrageArbitrage is the attempt to profit from small price differences in the same asset, or equivalent combinations of assets, by buying and selling at once.
- SpreadThe spread is the difference between the ask (buy) price and the bid (sell) price of a currency pair. It is a built-in cost paid on every trade.