Inside the Currency Market: Mechanics, Valuation, and Strategies

U.S. Dollar Pairs and LIBOR

An important point to note is the first four pairs addressed were the euro/U.S. dollar, British pound sterling/U.S. dollar, Australian dollar/U.S. dollar, and New Zealand dollar/U.S. dollar. In these examples, U.S. dollar was the base currency and it was sold with every rise of the quote currency and vice versa. The same principle holds for these pairs as was discussed for trade weight indices (TWIs).

Central banks and governments of these currency pairs want a rise in prices. They want their currency first in the quote position aligned with the U.S. dollar as the base. For example, the euro/U.S. dollar may trade at, for example, 1.2818 but the ECB and European governments would love to see 2.2818 or 3.2818. Under ...