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USD strength and the fraction logic

Forex Foundations

A pair is a fraction

Think of a currency pair as a fraction: the base currency is the numerator, the quote currency is the denominator. Good news for the top currency pushes the pair up. Good news for the bottom currency pushes the pair down.

Strong USD hurts USD-bottom pairs

Strong economic news for the US dollar is good for the dollar itself, but it's bad news for every pair where USD sits on the bottom, like EUR/USD or GBP/USD, since a stronger dollar buys more of the other currency.

Strong USD helps USD-top pairs

The same strong dollar data is bullish for pairs where USD sits on top, like USD/JPY, since a stronger dollar buys more yen. The direction flips entirely depending on which side of the fraction the dollar sits on.

Check yourself

In the pair GBP/USD, strong economic news for the pound should push the pair…

  1. Up correct
  2. Down
  3. It has no effect on the pair

Good news for the base currency, the pound here, pushes the whole pair higher.

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