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Forex is the largest and most volatile market in the world with a wide range of currency combinations to choose from. To keep things simple, here are ten of the most popular currencies on the market.
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The findings in this article are taken from a three-year survey by the Bank for International Settlements (BIS), which was last conducted in April 2019.
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Currencies are always traded in pairs because when you buy or sell one currency, you sell or buy another. Each currency group has a base currency and an exchange rate – the base currency is first and the nominal currency is to the right of it.
The price shown on a pair of coins is the amount of money you would need to buy one share of the original coin.
For example, in the EUR/USD currency pair, EUR is the base currency and USD is the reference currency. If the quoted rate was 1.2000, it means that one euro is worth 1.20 US dollars.
EUR/USD is the most traded currency in the market, and EUR/USD makes 24.0% of daily forex trade in 2019.1 world. : the single market of Europe and the USA.
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Hh EUR/USD daily trading volume confirms that the pair has a lot of money, which usually leads to tht spread. Liquidity spreads and tht attracts traders because it means that large trades can be made without affecting the market.
The EUR/USD exchange rate is determined by several factors, not the least of which is the interest rate set by the European Central Bank (ECB) and the US Federal Reserve System (Fed). This is because interest bearing funds are often sought after because their interest rates offer a better return on the initial investment. If, for example, the ECB were to set its interest rate earlier than the Fed, it is likely that the euro would appreciate against the dollar.
Also known as the “gopher”, the USD/JPY currency consists of the US dollar and the Japanese yen. It is the second most traded currency group in the market, accounting for 13.2% of all daily transactions in 2019.
Like EUR/USD, USD/JPY is characterized by hh liquidity, which it gets because the yen is the most traded currency in Asia and the US dollar is the most traded currency in the world.
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Like the Fed and the ECB, the Bank of Japan (BoJ) sets interest rates for the Japanese economy, which in turn affects the value of the yen against the US dollar.
The currencies of the two groups are the British pound and the American dollar. GBP/USD is called the “cable” because of the deep sea cables that carried goods between London and New York. In 2019, the GBP/USD pair made up 9.6% of the total daily volume.
As with many other currencies, the strength of the GBP/USD is based on the strength of the UK and US economies. If the British economy grows faster than the American economy, the pound may strengthen against the dollar. However, while America’s economy is doing better than Britain’s, the opposite is true.
Like the first currency pair on this list, the GBP/USD rate depends on interest rates set by the Bank of England (BoE) and the Fed. This difference between interest rates on the pound and the dollar can have a significant impact on the value of the GBP/USD exchange rate.
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AUD/USD, sometimes referred to as the Australian dollar, represents the Australian dollar against the US dollar. In 2019, it accounted for 5.4% of the daily transactions in the Forex market.
The value of the Australian dollar is closely linked to the value of its exports, with exports of metals and minerals such as iron ore and coal making up a large part of the country’s gross domestic product (GDP).
A fall in the price of these commodities in the international market could lead to a fall in the value of the Australian dollar. In the case of the AUD / USD currency pair, this means that the US dollar will be stronger, so it will cost less to buy one Australian dollar.
Like the currencies mentioned earlier, the AUD/USD rate is also affected by the interest rate differential between the Reserve Bank of Australia (RBA) and the US Federal Reserve. For example, if US interest rates are low, the US dollar may weaken against the Australian dollar, making it more expensive to buy one Australian dollar.
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USD/CAD is often referred to as the “loonie” because of the loon bird found on the Canadian dollar coin and represents the US dollar / Canadian dollar. In 2019, USD/CAD trading accounted for 4.4% of daily forex trading.
Since oil prices on international markets are based on US dollars, Canada can earn more US dollars by exporting oil. Therefore, if the price of oil rises, it is likely that the Canadian dollar will strengthen against the US dollar.
A common rule of thumb is that the US dollar usually weakens when the price of oil rises, because when the dollar weakens, more US dollars have to be converted into other currencies to buy the same oil as before. Similarly, high oil prices mean that the Canadian dollar may strengthen due to the close relationship between the Canadian dollar and the price of oil.
Therefore, traders should keep a close eye on the price of Brent and US crude when trading USD/CAD, as any fluctuations in the oil market can affect the price of these currencies.
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The USD/CNY pair is the relationship between the US dollar and the Chinese yuan – commonly known as the yuan – which accounted for 4.1% of daily forex trading in 2019.
Since the start of the trade war between the US and China, the yuan has fallen sharply against the US dollar. This was due to the Chinese government allowing the yuan to depreciate, knowing that it would make the country’s trade cheaper and increase the market share it already has in countries other than the US.
With it, you can exchange two currencies USD/CNH – CNH is the offshore version of renminbi that is traded outside of China. The yuan is called CNY only when it is traded in the Chinese market. CNH is not normally regulated by the Chinese government like CNY, meaning it can be volatile. This volatility can make it a better choice for speculative trading.
Traders should keep a close eye on the US-China trade war for any potential impact on the value of the currency.
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The USD/CHF pair consists of the US dollar and the Swiss franc and is known as the “Swiss dollar”. USD/CHF is a popular currency pair because the Swiss financial system has been safe for investors and their capital.
As a result, traders often turn to the Swiss franc during periods of market volatility, but the Swiss franc often sees little interest from traders during periods of market stability. During periods of volatility, the pair’s value may fall as the Swiss franc grows against the US dollar following a surge in currency.
Because the Swiss franc is used in times of financial crisis or as a safe haven, it does not sell as quickly as the previous six currencies on this list. However, USD/CHF still accounted for 3.6% of all daily forex trades in 2019.
USD/HKD is the exchange of the Hong Kong dollar against the US dollar. The volume of sales of the two doubled between 2016 and 2019 – from 1.5% to 3.3% of all daily transactions.
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The increase may be due to the Hong Kong protests that took place in 2019. The protests were caused by the demand to approve changes to the immigration law, as well as allegations of police brutality against Hong Kong residents.
The protest started about a month before the data was collected, so it is likely that it affected the trading volume of USD/HKD. This is probably because the amount of media coverage has made many traders and speculators focus on Hong Kong.
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