Because the dollar is the denominator or quote currency, the EUR/USD currency pair stands for the euro versus the U.S. dollar and differs from most others. The U.S. dollar is frequently used as the numerator or base currency in other currency combinations. As a result, the value of the pair rises when the dollar is weaker (against the euro) and falls when the dollar is stronger (versus the euro).
Knowledge of Currency Pairs
The base currency in a currency pair is the first one, while the quote currency is the second. Additionally, currency pairings can be divided into direct and indirect forms. The base currency in a direct quotation is the foreign currency, while the quote currency is the local currency. In an indirect quotation, the base currency is the national currency, and the quote currency is the foreign currency.
The country in which the trader resides can affect the way currency pairings are quoted; while the majority of nations utilize direct quotations, the U.K., Australia, New Zealand, and Canada use indirect quotes. The majority of dollar-based pairings are straight quotations.
A EUR/USD quotation is an indirect one for an American trader, nevertheless. For instance, a rate of 0.80 EUR/USD suggests that you would pay $0.80 for 1 EUR. The euro has gained in value if the pair increases to $1 since it now costs $1 to acquire one euro. The dollar, on the other hand, is strengthening if the pair is quoted at.75 since it now only costs $0.75 to buy one euro.
Euro vs. Dollar
The Maastricht Treaty, which was signed in 1992, is where the euro currency was born, and it was officially adopted as an accounting currency in 1999. Beginning in January 2002, the euro entered circulation in EU member states, eventually displacing the currencies of the majority of them. The EUR/USD pair sees the most trade in the world of currency pairings, making the euro the second most active currency in the world behind the USD.
Even though the U.S. dollar is used in approximately 90% of all currency exchanges worldwide and is listed first in most pairs, the EUR/USD currency pair is never explicitly stated. The main justification for this is convention. There are no hard and fast rules that dictate whether a currency pair is reported directly or indirectly; a EUR/USD quotation might simply be shown as USD/EUR by performing a simple computation.