Cross rate

A rate between two currencies neither of which is the US dollar, such as euro against sterling or euro against yen. The pairs themselves are commonly called crosses. The name is a fossil: before direct quoting between two non dollar currencies was routine, a euro to yen rate was constructed by crossing two dollar rates, and pricing for the thinner crosses is still assembled that way behind the quotation.

The construction is a division or a multiplication depending on how the two legs are quoted. Where both are quoted with the dollar as the counter currency, the cross is one leg divided by the other. Where one is quoted the other way round, it is a multiplication. Liquid crosses now have their own direct market, which is why their dealing spreads are narrow, while thinner ones inherit the spreads of both legs used to build them and are correspondingly wider.

The useful thing about a cross is that it removes the dollar from the comparison, and the confusing thing is the same fact. A day on which the dollar moves against everything can leave a cross almost unchanged while both of its legs travel a long way. There is also a naming disagreement worth knowing: outside dollar centred desks, a cross often means any pair that does not involve the local currency, so the word does not carry the same meaning in every market.