What is Cross Rate?

A cross rate (or cross currency pair) is an exchange rate quoted for two currencies that do not involve the US dollar as one of the pair. Since the USD is the world's primary reserve currency, most currencies are quoted directly against it. To find the rate between two non-USD currencies, traders calculate it using the USD rates for both. For example, the EUR/GBP rate is derived from EUR/USD and GBP/USD.

Cross rates are essential in the global forex market for trading between major non-dollar currencies and for identifying arbitrage opportunities. They allow investors and corporations to directly hedge or speculate on the value relationship between two specific currencies without needing to convert through USD first, although the underlying calculation still references the dollar's value.