FX & macro glossary

Plain-English definitions of the forex and macroeconomic terms that matter — pips, spreads, carry trades, hawkish and dovish, QE and QT, and more.

Pip

A pip ('percentage in point') is the standard increment by which currency pairs are quoted and the common unit for measuring price moves and sizing risk.

Spread

The spread is a transaction cost: the gap between the price at which you can sell and buy. More liquid pairs like EUR/USD have tighter spreads.

Base currency

In EUR/USD, the euro is the base currency. The quote shows how much of the second (quote) currency one unit of the base is worth.

Quote currency

In EUR/USD, the US dollar is the quote currency. A rate of 1.08 means one euro is worth 1.08 US dollars.

Carry trade

The carry trade earns the rate gap between two currencies in calm markets but can unwind sharply when volatility rises.

Hawkish

A hawkish stance or comment signals concern about inflation and a bias toward higher rates, which tends to strengthen a currency.

Dovish

A dovish stance signals a bias toward lower rates or stimulus, which tends to weaken a currency.

Basis point

Interest-rate changes are measured in basis points; a 25-basis-point hike raises a rate by 0.25 percentage points.

Central bank

Central banks like the Fed and ECB set interest rates and use other tools to pursue price stability and, often, employment goals.

Quantitative easing (QE)

QE expands the central bank's balance sheet to ease financial conditions when rates are already low, tending to weaken the currency.

Quantitative tightening (QT)

QT is the reverse of QE; by reducing bond holdings it tightens financial conditions and can support the currency.

Yield curve

The yield curve's shape reflects growth and policy expectations; short-end yields are a key proxy for rate-differential FX analysis.

Safe haven

Safe-haven currencies — the US dollar, Japanese yen, and Swiss franc — tend to strengthen when risk appetite falls.

Forward guidance

Forward guidance shapes market expectations and often moves currencies more than the current rate decision itself.

Liquidity

Highly liquid pairs trade in large size with tight spreads; thin liquidity amplifies volatility, especially outside major sessions.

Volatility

Higher volatility means larger swings and greater risk; volatility regimes strongly affect strategies like the carry trade.

Currency cross

Crosses like EUR/GBP and EUR/JPY isolate the relationship between two non-dollar currencies.

Fixing (the fix)

Some currencies, like China's renminbi, are managed around a daily reference rate; benchmark fixings are also widely used for settlement.