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Question about currency supplies

  • #1
  • First Post: Feb 1, 2011 9:21am Feb 1, 2011 9:21am
Sorry for my ignorance but trying to wrap my head around a certain concept

Take two pairs GBP/USD and EUR/USD. Is the USD supply of these two pairs always the same?

For example - If people started buying/exchanging USD for pounds through the interbank would this acquisition of USD also affect the amount of supply in the EUR/USD market/pair and subsequently all USD and POUND pairs or are they separate?

Know what I mean?

The way I see it is there is only a certain amount of US Dollars in the world so no matter which pair USD is bought on it must affect the supply of all USD pairs as there is simply now LESS USD in the world supply. Is this right?

Thanks in advance
Time hides Nothing
  • #2
  • Feb 1, 2011 9:53am Feb 1, 2011 9:53am
USD = unlimited supply

other currencies = not so unlimited

Invincibility lies in the defence, the possibility of victory in the attack
  • #3
  • Feb 1, 2011 9:57am Feb 1, 2011 9:57am
Quoting silverheat
USD = unlimited supply

other currencies = not so unlimited

haha yes I get that but...

What I mean is if an institution exchanges a bunch of EUROS for USDs will this transaction also affect the supply of all USD related pairs?

In a simply way is the supply of any currency in the FOREX market 1 big pool or llots of separate little pools?
Time hides Nothing
  • #4
  • Feb 1, 2011 10:04am Feb 1, 2011 10:04am
Quoting CindyXXXX
haha yes I get that but...

What I mean is if an institution exchanges a bunch of EUROS for USDs will this transaction also affect the supply of all USD related pairs?

In a simply way is the USD supply pool in the FOREX market 1 big pool or llots of separate little pools?
aren't all currency trades denominated in USD?
Invincibility lies in the defence, the possibility of victory in the attack
  • #5
  • Feb 1, 2011 10:12am Feb 1, 2011 10:12am
Quoting silverheat
aren't all currency trades denominated in USD?
Yes, but that doesn't really answer the question unless I'm missing something
Time hides Nothing
  • #6
  • Feb 1, 2011 10:22am Feb 1, 2011 10:22am
isn't it that you either buy or sell currencies/commodities/stocks/bonds, never the dollar per se?

i don't know the answer to your question, but if i had to guess, all the banks, brokers, individuals, companies that own dollars make up the overall supply.
i can buy dollars stashed away in my friends safe with my euros, ... does this change price?
Invincibility lies in the defence, the possibility of victory in the attack
  • #7
  • Feb 1, 2011 10:25am Feb 1, 2011 10:25am
Yes...
Example: if an American buying a GBP at this moment. He will have to pay US 1.61 to get a GbP while the Japanese will have to pay 131 Yen for the same Gbp.

If the seller of GBP decided to increase the price of GBP say to $2 since there is a lot of demand. Then the Japanese will also have to pay more than 131 Yen to get the same GBP as well.

In short if a certain currency appreciates then all other pairs involve with that currency will pay for that appreciation.

Joven
  • #8
  • Feb 1, 2011 10:26am Feb 1, 2011 10:26am
Quoting silverheat
i can buy dollars stashed away in my friends save with my euros, ... does this change price?
Great point and this is what I'm trying to get at. is the FOREX market controlled by set supplies of USD across the interbank, or is it directly related to the relative individual instrument.

I think the answer would be interesting
Time hides Nothing
  • #9
  • Feb 1, 2011 10:40am Feb 1, 2011 10:40am
I second that request dude, I also would like to know that.
But you know, maybe 1 or 2 people know the answer, and you know who.
I'll be googling some about this subject.
  • #10
  • Feb 2, 2011 6:03am Feb 2, 2011 6:03am
any body else?
Time hides Nothing
  • #11
  • Feb 2, 2011 7:14am Feb 2, 2011 7:14am
Quoting CindyXXXX
Sorry for my ignorance but trying to wrap my head around a certain concept

Take two pairs GBP/USD and EUR/USD. Is the USD supply of these two pairs always the same?

For example - If people started buying/exchanging USD for pounds through the interbank would this acquisition of USD also affect the amount of supply in the EUR/USD market/pair and subsequently all USD and POUND pairs or are they separate?

Know what I mean?

The way I see it is there is only a certain amount of US Dollars in the world so no matter which pair USD is bought on it must affect the supply of all USD pairs as there is simply now LESS USD in the world supply. Is this right?

Thanks in advance
Hi Cindy,

It would appear to me to be like so: there are no such things as "pairs". You are simply exchanging one currency for another. So I buy dollars from you and pay for it in pounds. I then buy more dollars from you and pay you in euros. There is no supply of dollars allocated to one thing or another - there is simply a global amount of available dollars, pounds, euros, and all other currencies. So your "The way I see it..." seems to me to be spot on.
  • #12
  • Feb 2, 2011 8:00am Feb 2, 2011 8:00am
I've wondered this too, and the closest I've come to an answer is to watch single currency futures. They look similar to spot currency but not exactly.

A good example is AUD: the AUDUSD triple top from November 2009-April 2010 is roughly 500 pips below the previous high in July 2008, yet AUD futures triple top is at the same price level.

So the futures chart is more accurately going to show supply/demand.

Rob
  • #13
  • Feb 3, 2011 9:31am Feb 3, 2011 9:31am
You can trade EUR futures and you can trade EURUSD futures and you can trade EURUSD spot, they're different instruments. For the most part, the major single-currency futures look like that currency when paired with USD, meaning EUR futures look similar to EURUSD forex, GBP futures look like GBPUSD forex, etc.
  • #14
  • Last Post: Feb 3, 2011 2:44pm Feb 3, 2011 2:44pm
Another good thing is to look at Currency Index Something like USDX which is made from geometric weighted average of dollar value against basket of other currencies.
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