Currency Crosses: Everything You Need to Know About Cross Currency Pairs in the

The term 'currency cross' refers to any currency pair in which the US dollar is not involved, either as the base or quote currency. For example, the EUR/GBP pair is considered a cross because the dollar is not part of the transaction. In the Saudi financial market, this concept has particular significance, as the Saudi riyal has historically been pegged to the dollar. This peg means that any changes in the value of the dollar are directly reflected in the riyal, and consequently, indirectly affect all cross currency pairs linked to the riyal. Therefore, even though official currency trading in the Kingdom is mostly conducted through banks and investment portfolios, currency crosses continue to influence the cost of imported goods and services, the valuation of international investments, and liquidity and inflation indicators in the local economy.

Currency crosses operate by directly linking two foreign currencies without the need to convert them through the US dollar first. This allows investors or traders to speculate on the relative strength between two currencies independently of the dollar, such as the euro and the Japanese yen. In the past, most currency exchanges went through the dollar as an intermediary, but advances in financial technology and increased market liquidity have made trading crosses easier and more efficient. In Saudi Arabia, for instance, a company importing from Japan and exporting to Europe will be affected by EUR/JPY fluctuations when converting revenues or payments into riyals, as currency values are often calculated via the dollar first and then converted to riyal. These operations highlight the importance of understanding currency crosses in managing exchange rate risks and hedging.

There are many cross currency pairs in the forex market, but the most prominent globally include: EUR/JPY, GBP/JPY, EUR/CHF, and GBP/CHF. These pairs are popular for several reasons, such as relatively high liquidity, strong economic ties between the involved countries, and opportunities to speculate on differing regional monetary policies. In the Saudi market, pairs like EUR/JPY or EUR/GBP play an indirect role in determining import and export costs, especially when business is conducted with Europe or Japan and currency conversion to riyal occurs via the dollar.

Saudi companies, especially those importing from or exporting to countries other than the United States, closely monitor movements in cross currency pairs. For example, a company importing equipment from Japan and exporting products to Europe needs to manage the risks of EUR/JPY fluctuations. Movements in this pair can lead to sudden changes in the actual cost of goods when converted to Saudi riyals. Large companies also benefit from financial hedging tools based on currency crosses to reduce exchange rate risk and improve the efficiency of their international financial operations. This topic is gaining additional importance as the Kingdom pursues Vision 2030 and expands its global trade relations.

The policy of pegging the Saudi riyal to the US dollar at a nearly fixed rate (3.75 riyals per dollar) limits riyal volatility against other currencies, providing price stability for local goods and services. However, any change in the dollar's value against other currencies is immediately reflected in the riyal's value against those currencies, even if the dollar is not directly involved in the transaction. For example, if the euro rises against the dollar, the euro's price in Saudi riyals will increase by roughly the same percentage. This indirect effect requires Saudi companies and investors to monitor currency crosses even if they primarily deal in dollars or riyals.

In 2024, the average daily trading volume in global forex markets exceeded $7 trillion, driven by increased volatility and rising demand for cross currency pairs from investors seeking portfolio diversification and risk distribution. The first quarter of 2024 also saw an uptick in trading of foreign currency pairs against digital currencies, highlighting market flexibility and diverse trading options. In terms of prices, the average EUR/GBP rate reached 0.85 by mid-2025, while EUR/JPY was around 160 yen per euro. For the riyal, the euro's value ranged between 3.93 and 4.31 riyals during the second half of 2024, depending on dollar fluctuations.

Foreign currency trading in Saudi Arabia is supervised by the Capital Market Authority (CMA) and the Saudi Central Bank (SAMA). In 2024, the CMA issued new licenses for several forex trading platforms to modernize the financial sector, enhance transparency, and protect investors. Nevertheless, official currency trading remains primarily limited to local banks and licensed financial institutions. Recent years have seen a 15% increase in forex trading accounts compared to 2023, with a growing role for fintech and digital trading platforms. However, dealing with unlicensed firms is strongly discouraged due to high associated risks.

Currency crosses are influenced by several main factors, including central bank monetary policies (such as interest rate decisions in Europe or Japan), economic data (growth, inflation, unemployment), and geopolitical events (crises, elections). Even without the US dollar as a direct party in the pair, its movements indirectly affect crosses due to its global benchmark status and the linkage of most currencies to it. Market liquidity, spread levels, and technological developments (such as the spread of algorithmic trading) also play a role in determining trading volumes and volatility in cross pairs.

Companies and financial institutions rely on currency crosses to hedge exchange rate risk when executing international transactions that do not involve the US dollar. Tools such as futures or options contracts on cross currency pairs can be used to lock in future costs or revenues. Individual traders benefit from the volatility of these pairs to achieve quick profits through speculation, using both technical and fundamental analysis. Popular strategies include arbitrage trading and carry trade strategies, which exploit interest rate differentials between two currencies in a cross pair.

Despite the significant opportunities offered by cross currency pairs, they carry several risks, including sharp price fluctuations due to lower liquidity compared to major pairs, and slippage risks during economic news releases or unexpected events. Analyzing these pairs requires a dual understanding of both involved economies, increasing the complexity of forecasts. Managing these risks requires the use of hedging tools, adherence to cautious trading policies, and reliance on reliable information sources and accurate analyses.

2024 has seen notable advancements in the use of artificial intelligence and trading algorithms for analyzing cross currency pairs. Some Saudi brokerage firms have reported that over 20% of their new users utilize advanced analytics software or automated trading signals. These technologies enable rapid analysis of big data and market signals, improving decision-making and reducing human error. API interfaces and real-time analytics also empower companies and institutions to manage their currency exposure more efficiently.

Currency crosses play an important role in evaluating the investments of the Saudi sovereign wealth fund and international portfolios holding assets in non-dollar currencies. Fluctuations in foreign exchange rates directly impact the final investment return when converted to riyals or dollars. Crosses also affect liquidity and inflation indicators in the Saudi economy, as changes in the prices of goods and services imported from outside the US are often attributed to movements in cross currency pairs, not just the dollar.

Currency crosses are expected to continue influencing the Saudi market for years to come, especially as the riyal remains pegged to the dollar. However, joint central bank digital currency (CBDC) projects between Saudi Arabia and the UAE may change the landscape of regional trading and settlements, reducing reliance on the dollar for intra-regional transactions. The expansion of forex platform licensing and improved financial literacy among individuals will drive greater openness to cross pair trading. The Kingdom may also witness new financial innovations supporting greater transparency and efficiency in currency risk management.

Data and analysis on cross currency pairs are available from numerous local and international sources. Leading sites include Bloomberg, Reuters, and Investing.com, which offer real-time data and both technical and fundamental analysis. Saudi local banks also provide daily exchange rates and direct conversions via their electronic apps. Global trading platforms (eToro, XM, MetaTrader, and others) allow users to track charts and receive trading signals for cross pairs. The Saudi Central Bank also issues periodic reports on reserves and major exchange rates, which can be used to calculate cross rates against the riyal.