The predominant status of the USD in Forex trading in all the world including Forex in Singapore has led to the fact that in most cases when indicating the exchange rates we mean the behavior of the currency pair, depending on the USD. In other words, the USD has become a fundamental symbol of the behavior of all Forex currencies. However, in some situations, you need the transaction to be done directly between other national currencies without the participation of the USD.
For instance, you need to buy British pounds (GBP) against the Japanese yen (JPY). In this situation, a trader makes a request to his Forex broker. The purpose of the request is to provide such a currency pair (GBP/JPY) for the transaction. Forex currency pairs of this type are called the cross-rates. In such pairs the USD is lacking. As a whole, any currency can be purchased for any other one. As a result, the number of cross-rates is very high (EUR/JPY, EUR/CHF, GBP/JPY, etc.). If we analyze the difference within cross-rate and the common Forex currency pair, we can easily find the difference. National currencies are always famous by their material and physical embodiment (banknotes and coins) but cross-rates have no such features, because they do not possess such property as a direct national identity.
Consequently, the quotation of cross-rates does not occur straight, but is calculated using the USD. For instance, if there is a need to define the cross-rate for EUR/JPY the following operation takes place: the Singapore FX trader buys USD for JPY on the basis of the USD/JPY current rate. After that, he uses the amount of the purchased USD in order to buy EUR for the current EUR/USD rate. If we represent these operations in the form of mathematical relationship, we find that the USD in the first currency pair plays the role of the numerator and the second – the denominator. If you rely on school rules of arithmetic, the dollar could be reduced. So, what remains in the formula will represent a Forex cross-rate of EUR/JPY.
Many of the Singapore Brokers have a lot of cross currencies open for trading. When alanyzing and predicting the cross-rates movements you can apply the same procedure as in the analysis of the basic currency pairs. For instance, if EUR is actively bought by traders against the British pound, Canadian dollar or Swiss franc, the growth in demand for EUR would lead to a rise in its value against the USD as well. In such a case, a such criteria as strength of the EUR in relation to various currencies can be radically different. Thus, evaluation of the cross rates has played an important role in foreseeing the behavior of basic exchange rates.