The major pairs in detail
1. EUR/USD: the world’s most traded pair
EUR/USD accounts for over a fifth of all forex volume. The pair represents the two largest economies globally and is characterised by very tight spreads, typically 0.6-1.2 pips with major brokers during the London and New York sessions. ECB and Federal Reserve policy divergence is the most powerful long-term driver: when the Fed raises rates more aggressively than the ECB, the dollar typically strengthens against the euro, pushing EUR/USD lower, and vice versa. For most beginner forex traders, EUR/USD is the recommended starting point due to its liquidity, tight spreads and extensive historical data.
2. USD/JPY: the yen’s carry trade legacy
USD/JPY is the second most traded pair and is particularly significant because of the yen’s historical role as a funding currency in carry trades. Japanese interest rates were near zero for decades, making it cheap to borrow yen and invest in higher-yielding currencies. As the Bank of Japan began normalising rates from 2024 onwards, yen pairs saw heightened volatility. USD/JPY is sensitive to risk sentiment globally: yen strengthens in risk-off environments as carry trades unwind; it weakens when risk appetite is strong.
3. GBP/USD: ‘cable’
GBP/USD, known as ‘cable’ due to the transatlantic telegraph cables used for historical communication, represents sterling against the dollar. The British pound is the oldest actively traded currency in global forex, and London is the world’s largest FX centre, handling over 40% of global turnover. GBP/USD is heavily influenced by Bank of England rate decisions, UK inflation data and, since 2016, the ongoing implications of Brexit for UK trade. Just as FTSE 100 companies’ revenues are significantly affected by GBP movements (since approximately 75% of FTSE revenues come from outside the UK), GBP/USD moves can have meaningful second-order effects on UK equity portfolios.
4. USD/CNY: China’s growing influence
The US dollar/Chinese yuan pair reflects the world’s two largest economies by nominal GDP. Unlike fully floating currencies, the yuan operates within a daily trading band set by the People’s Bank of China, making it a managed float. This means CNY does not respond to market forces in the same way as EUR/USD; PBOC interventions and band adjustments are primary drivers. USD/CNY volumes have grown significantly as China’s role in global trade has expanded.
5-7. USD commodity pairs: CAD, AUD, CHF
USD/CAD (the ‘loonie’) is closely linked to oil prices because Canada is a major oil exporter. Rising oil prices typically support the Canadian dollar, pushing USD/CAD lower. It follows the logic that has been analysed extensively in fashion stocks research and commodity sectors more broadly: the underlying commodity exposure drives the currency.
AUD/USD (the ‘Aussie’) reflects Australia’s role as a major commodity exporter, particularly of iron ore and coal to China. Chinese economic data significantly affects AUD/USD; slowdowns in Chinese manufacturing consistently weaken the Aussie. USD/CHF reflects Switzerland’s safe-haven status: the franc strengthens during periods of global uncertainty and weakens when risk appetite is strong.