Major currency pairs

What makes a pair a major 

There is no committee that designates a major currency pair and no regulation that defines one. The term is market usage, and the usage is consistent: a major is a pair in which one side is the US dollar and the other is one of a small group of freely floating currencies issued by large, open, high-income economies. Seven pairs satisfy that description and are named as majors almost everywhere the term is used.

The dollar is on one side of every one of them, and that is the defining structural feature rather than an accident of history. The dollar is the currency most international trade is invoiced in, the currency most cross-border debt is issued in, and the currency central banks hold the largest share of their reserves in. A currency that needs to be exchanged for another currency is very often exchanged through the dollar on the way, which concentrates turnover into dollar pairs and leaves them with the deepest continuous quoting.

The consequence is practical. Because so much flow passes through them, the majors are the pairs institutions are willing to quote in size around the clock, the pairs whose quotations sit closest together across different institutions, and the pairs that recover fastest after a disruption. Everything else in the currency market is priced with reference to them.

The seven pairs 

• EUR/USD, the euro against the US dollar. The single most heavily dealt currency pair in the world, and the pair against which the liquidity of every other instrument is informally measured.
• GBP/USD, the British pound against the US dollar, known in dealing rooms as cable, after the transatlantic telegraph cable along which the rate was once transmitted.
• USD/JPY, the US dollar against the Japanese yen. The dollar is the base here rather than the quote, so the number rises when the dollar strengthens against the yen.
• USD/CHF, the US dollar against the Swiss franc, sometimes called the swissie. The franc's long association with capital preservation gives this pair a distinct behaviour when risk appetite falls.
• AUD/USD, the Australian dollar against the US dollar, the aussie. Australia's export profile ties it closely to industrial commodity demand and to Chinese activity data.
• NZD/USD, the New Zealand dollar against the US dollar, the kiwi. A smaller economy than Australia's, with an export base weighted towards agricultural products.
• USD/CAD, the US dollar against the Canadian dollar, the loonie. Canada's export profile is weighted towards crude oil, and the pair is conventionally read alongside the oil benchmarks.

Four of the seven quote the dollar second and three quote it first. The ordering is convention rather than logic, and it matters when a move is being described, because the direction of the number and the direction of the dollar are the same in some pairs and opposite in others. A rising EUR/USD is a weaker dollar; a rising USD/JPY is a stronger one.

What each one is sensitive to 

The majors share a dollar leg, so the whole group responds to anything that reprices the dollar: United States interest rate expectations, US inflation and labour market data, and the market's judgement of US growth. Because that input is common to all seven, it is the input that makes them move together, and it is the reason the group is often read as a single dollar signal rather than as seven independent instruments.

What separates them is the other leg. EUR/USD carries euro area policy and the euro area's own growth and inflation picture. GBP/USD carries United Kingdom policy and the pound's particular sensitivity to domestic political and fiscal news. USD/JPY has historically been read against the gap between long-dated US and Japanese government bond yields, because that gap is the return differential most directly implicated when capital moves between the two. AUD/USD and NZD/USD carry commodity demand and, through it, Chinese activity data. USD/CAD carries crude oil. USD/CHF carries the franc's role as a currency capital moves into when risk appetite falls.

Because six of the seven share a dollar leg with the others, they are not independent of one another. Two pairs that both quote the dollar as the base tend to move together, and a pair that quotes it as the base tends to move opposite one that quotes it as the counter. Those relationships are statistical regularities rather than rules, they are measured over a chosen window, and they change: the correlation observed over one quarter is not a property of the pair.

Liquidity through the day 

The majors are quoted continuously through the market's week, but they are not quoted equally at every hour. Each pair has home sessions in which the institutions that deal in it most heavily are open, and the amount of size available at each price is largest then. EUR/USD and GBP/USD are most heavily dealt through the European session and the London to New York overlap. USD/JPY is most heavily dealt through the Asian session and again during the overlap. AUD/USD and NZD/USD see their most concentrated dealing in the Asia-Pacific hours.

Outside those windows the same instrument continues to trade with fewer institutions quoting it. The quoted price is still a real price; there is simply less depth behind it, so a given order consumes more of the available size and the rate moves further. The pattern repeats every day and is the reason the same pair can look calm at one hour and jumpy at another without anything having happened to the underlying economies.

Quoting and sizing conventions 

Six of the seven majors are quoted to four decimal places, and the fourth decimal place is the pip. USD/JPY is quoted to two decimal places because the yen's unit value is far smaller, so its pip is the second decimal. Many venues add a fifth decimal, or a third for the yen pair, which is a fraction of a pip rather than a new unit and is conventionally read as a tenth.

Contract size in currency CFDs is stated in lots, and a standard lot is conventionally one hundred thousand units of the base currency. The money value of one pip therefore depends on the quote currency rather than on the pair's popularity, which is why the same one-pip move is worth a different amount on different majors once it is converted into an account's own currency.

What the label does not mean 

A major is a description of turnover, not a description of stability. These pairs are heavily dealt, which usually means quotations sit close together and orders are absorbed without a large move, but heavy dealing is not a guarantee of an orderly market. Depth in the most heavily dealt pairs has thinned abruptly around scheduled data, around policy announcements, and in the hours when the largest centres are closed, and the largest single-session moves on record in the currency market have occurred in pairs on this list.