Rate Differentials and FX: How Yields Move EUR/USD and USD/JPY
Short-term interest rate gaps between countries are one of the main forces behind major currency pairs. Here is how US Treasury yields relate to EUR/USD, USD/JPY and gold, when FX liquidity is deepest, and how to work out position size from a stop in pips.
By PYE Markets • Published 2026-10-18 • Updated 2026-10-21 • 7 min read
Update, 2026-10-21: Corrected on 21 October 2026: we said UK-based desks handled about 38% of global FX turnover. The BIS release we cite does not give that figure; it says sales desks in the UK, the US, Singapore and Hong Kong SAR together accounted for 75%.
Key points
- Interest-rate differentials, especially at the two-year maturity, are a major driver of G10 exchange rates. When US two-year yields rise relative to German or Japanese yields, EUR/USD has tended to fall and USD/JPY to rise—though other factors can dominate for long stretches.
- Gold pays no interest, so it has often moved inversely to US real yields and the dollar. Central-bank buying and safe-haven demand also matter, and the relationship has weakened at times.
- Pip values differ by pair: $10.00 per pip per standard lot on pairs quoted in US dollars, such as EUR/USD, but $1,000 ÷ the USD/JPY rate on USD/JPY. Working out lot size from the stop distance keeps dollar risk consistent across pairs.
- EUR/USD, 1 Standard Lot: $10.00 per Pip
- Global FX Turnover: $9.6T/day (BIS, Apr 2025)
- London–NY Overlap: ≈ 08:00–12:00 ET
Global FX trading averaged $9.6 trillion a day in April 2025, according to the Bank for International Settlements’ Triennial Survey. Much of that activity responds to interest rates. Looking at a currency chart without the yields behind it leaves out one of the main reasons the pair is moving.
1. Yield Differentials, the Dollar Index and Real Yields
Alongside an FX chart, many macro traders watch the US two-year yield (a proxy for expected Fed policy), the 10-year yield and the US Dollar Index (DXY), in which the euro has a 57.6% weight and the yen 13.6%.
- EUR/USD and the US–German two-year spread: if a strong US data release pushes US two-year yields up while euro-area yields are unchanged, the rate gap widens in the dollar’s favour, which has tended to weigh on EUR/USD.
- USD/JPY: with Japanese rates long held far below US rates, USD/JPY has often tracked US Treasury yields closely. Sharp falls in US yields during risk-off periods have coincided with rapid unwinds of yen-funded carry trades.
- Gold: because it pays no coupon, rising US real yields and a stronger dollar have often been headwinds for gold; falling yields have often been supportive.
2. Trading Sessions and Liquidity
FX trades around the clock in three main regional centres: Asia (Tokyo, Singapore, Hong Kong), London and New York. In the BIS 2025 survey, sales desks in four places (the United Kingdom, the United States, Singapore and Hong Kong SAR) accounted for 75% of global FX trading. Activity is generally heaviest when London and New York are both open (roughly 08:00–12:00 ET), which includes the 4:00 PM London WM/Reuters benchmark fix (usually 11:00 AM ET). Liquidity thins in the late New York afternoon, and positions held past the daily rollover incur swap (interest) charges or credits.
3. Pip Values and Lot Size
A standard lot is 100,000 units of the base currency (a mini lot is 10,000; a micro lot 1,000). On pairs quoted in US dollars (EUR/USD, GBP/USD, AUD/USD), one pip (0.0001) is worth $10.00 per standard lot. On USD/JPY, a pip is 0.01 yen, worth $1,000 ÷ the USD/JPY rate per standard lot—for example, about $6.67 at 150.00. For spot gold quoted per 100-ounce lot, a $1.00 move is worth $100. Lot size for a fixed risk is: lots = risk ($) ÷ (stop in pips × pip value per lot).
G10 FX & Spot Gold Reference: Pip Values and Common Rate Drivers
| Instrument | Standard Lot | Pip / Point Value (1 Lot) | Rate Spread Often Watched | Main Liquidity Window (ET) |
|---|---|---|---|---|
| EUR/USD | 100,000 EUR | $10.00 per 0.0001 | US 2Y vs. German 2Y | London morning and London–NY overlap |
| GBP/USD | 100,000 GBP | $10.00 per 0.0001 | US 2Y vs. UK 2Y | London morning and London–NY overlap |
| USD/JPY | 100,000 USD | $1,000 ÷ spot per 0.01 (≈ $6.67 at 150.00) | US 10Y vs. Japan 10Y | Tokyo session and London–NY overlap |
| XAU/USD (gold) | 100 troy ounces | $100.00 per $1.00 move | US 10Y real yield and DXY | COMEX / New York morning |
Yield differentials help explain why major currency pairs and gold move; session timing explains when liquidity is deepest; pip arithmetic turns a stop distance into a consistent dollar risk. None of these relationships is fixed.
Editorial Disclosure: PYE Markets has no FX broker affiliate revenue. Turnover and location figures are from the BIS Triennial Central Bank Survey (April 2025). Pip values use standard spot conventions. The yield–currency relationships described are tendencies, not fixed rules. General information, not personal trading advice.