How to read a forex quote

Currency headlines are written in a shorthand that assumes you already know it: "EUR/USD slips to 1.07", "the yen weakens past 150", "sterling gains 40 pips". Once you know how a quote is built, every one of those lines becomes easy to read.

Currencies always come in pairs

You can't price a currency on its own, only against another one. That is why forex quotes always show two currency codes:

• The base currency is the first one. It is the unit you are pricing.
• The quote currency is the second one. It is what you pay for one unit of the base.

So EUR/USD = 1.0850 means one euro costs 1.0850 US dollars. If the number goes up to 1.0900, the euro has strengthened against the dollar (or the dollar has weakened, which is the same thing). If it falls to 1.0800, the euro has weakened.

The examples in this guide use round illustrative numbers, not live prices.

Why some pairs look "upside down"

Market convention decides which currency goes first. The euro, the British pound, the Australian dollar and the New Zealand dollar are usually quoted as the base against the US dollar (EUR/USD, GBP/USD). Most other currencies are quoted with the dollar as the base: USD/JPY = 150 means one dollar buys 150 yen.

That flips how you read the headline. When USD/JPY rises, the yen is getting weaker, because each dollar buys more yen. "The yen weakens past 150" means USD/JPY has climbed above 150.

Bid, ask and the spread

A live quote has two prices:

	EUR/USD
Bid (what the market pays you if you sell euros)	1.0850
Ask (what you pay if you buy euros)	1.0852
Spread	0.0002

The difference is the spread, and it is the main cost of trading currencies. Major pairs such as EUR/USD have tight spreads because they trade in huge volumes. Less traded pairs, and any pair during quiet hours or sudden news, have wider spreads.

Pips: the unit everyone talks about

A pip is the standard small move in a currency pair:

• For most pairs it is the fourth decimal place: 0.0001. EUR/USD moving from 1.0850 to 1.0890 is a move of 40 pips.
• For pairs involving the Japanese yen it is the second decimal place: 0.01. USD/JPY moving from 150.00 to 150.75 is 75 pips.

In the example above, the spread of 0.0002 is two pips. Many brokers also show a fifth decimal (a "pipette"), which is a tenth of a pip.

What actually moves a currency

Day to day, currencies react to four big forces:

1. Interest rates. Money flows toward higher returns. If the US Federal Reserve is expected to keep rates high while the European Central Bank cuts, the dollar tends to strengthen against the euro. This is why central bank meetings dominate forex news.
2. Inflation and jobs data. These releases change expectations about what central banks will do next, so they move currencies within seconds of being published.
3. Risk appetite. In calm markets, investors buy higher-yielding and emerging-market currencies. When fear rises, money tends to move into the US dollar, the Swiss franc and often the Japanese yen.
4. Trade and growth. A country that exports a lot, or whose economy is growing faster than its peers, tends to see more demand for its currency over time. Commodity exporters such as Australia, Canada and Norway also move with prices for metals and oil.

Reading a headline, step by step

Take "EUR/USD falls to 1.0750 after hot US inflation data":

• EUR is the base, USD is the quote.
• The number fell, so the euro lost value against the dollar.
• Hot inflation means the Federal Reserve may keep rates higher for longer, which makes the dollar more attractive. That explains the move.
• From 1.0850 to 1.0750 would be a 100-pip fall, a big move for a single day in a major pair.

Key takeaways

• The first currency in a pair is the one being priced; the number is how much of the second currency it costs.
• When USD is the base (USD/JPY, USD/CHF), a rising number means the dollar is strengthening.
• The spread is your cost of trading, and it widens when markets are thin or nervous.
• A pip is 0.0001 for most pairs and 0.01 for yen pairs.
• Interest rate expectations drive most of what you'll read in the Forex section.