Forex Market is the most attractive market for traders worldwide as it is the largest and most liquid market in the world with around 5$ trillion daily trading volume. It involves buying a currency in terms of another currency and then selling it back in order to earn profits. At present, there are 180 currencies that are actively circulated around the globe. Usually, the most popular currencies are bought and sold more frequently by forextraders. The variations in their prices are constant. Out of many, analysis has been made on 6 of the most popular currencies and more than 80% transactions take place in these currencies. These are called major currencies based on the most recent research by the Bank of International Settlements, which measures turnover in the forexmarkets every three years. Details have been shared below:
- U. S. Dollar (USD/ US$)
- USD is the official currency of the United States and its territories which is issued by the Federal Reserve (Fed). The United States is the world’s largest and strongest economy.
- All the important commodities like precious metals and oil in the global market are traded in USD which makes it the most actively traded currency. Also, most of the international transactions between countries and companies are conducted in U. S. Dollars.
- It also remains the dominant reserve currency for central banks and many institutional funds worldwide.
- The most traded pairs in the forex are EUR/USD, USD/JPY, GBP/USD, AUD/USD, USD/CAD, USD/CHF and their combinations. All these involve USD.
- As of June 2018, approximately US$1.67 trillion are in circulation.
- Value of USD is based on US economic performance and its demand in the forexmarket. However, economic performances of other countries like Ecuador, Panama and El Salvador, etc. also affect the value of USD.
- The popularity of this currency also due to the long term stability of US government.
- USD is universally accepted by all the banks and financial institutions across the globe.
2. European Euro
- The European euro is the official currency of 19 of the 28 member states of the European Union (EU) and as of 2019; it is used by 343 million people.
- It is the second most traded currency globally which is issued by the European Central Bank (ECB).
- The popularity is due to its economic strength throughout the Eurozone.
- Most commonly traded pairs are EUR/USD, EUR/JPY and EUR/GBP.
- EUR is one of the youngest currencies of the world which entered the world markets on January 1, 1999.
- Many nations within Europe and Africa peg their currencies to the Euro to stabilize the exchange rate.
- The value of EUR is manipulated by political events within the Eurozone.
- The European Euro is also called to be the most “politicized” currency actively traded in the forexmarket.
3. Japanese Yen (JPY)
- Japanese Yen is the official currency of Japan which is the third most traded currency on the global level and the most traded currency within Asia.
- Issued by the Bank of Japan (BoJ) since 1882 and is widely used as a reserve currency.
- The JPY’s value is highly dependent on the strength of Japan’s economy which is dominated by the manufacturing sector. This sector is known for its exporting quantities.
- Many forex traders use the rise and fall of the Yen as an indicator of the strength of Asian currencies as a whole.
- Japan is the world’s second-largest economy.
- Japan has basically an almost zero per cent interest rate policy for more than two decades now and the forex traders usually borrow the yen at almost no cost and use it to invest in other higher-yielding currencies around the world, thus pocketing the rate differentials in the process.
4. British Pound (GBP)
- This currency is commonly known as Pound which is issued by Bank of England (BoE).
- It is the official currency of the United Kingdom along with 9 other British territories.
- A little bit more volatile than the Euro, the British Pound tends to trade a wider range through the day.
- The most common forextrading pairs within the forexmarket with pounds are GBP/JPY, GBP/USD and GBP/ EUR.
- Its value is largely dependent on the UK’s economic performance, monetary policies, etc. Recently, its value has also been affected by the UK’s changing relationship with Europe.
5. Australian Dollar (AUD)
- It is the official currency of Australia and of three independent Pacific Island States.
- Introduced in February 1966, obsoleting Australian Pound, it is the fifth most traded currency globally and is issued by the Reserve Bank of Australia (RBA).
- The value of AUD is strongly influenced by commodity prices of coal, iron and copper; and by the ratio between the prices of its imports and exports.
- Most commonly traded forex pair is AUD/USD.
- The Australian Dollar is gaining popularity with the forextraders because of the comparatively higher interest rates in Australia.
6. Canadian Dollar (CAD)
- The Canadian dollar is the official currency of Canada and the sixth most traded foreign currency globally and accounts for a daily average volume of US$130 million.
- It is issued by the Bank of Canada (BoC) and is commonly known as the Loonie.
- Canada is quite rich in natural resources and is a major exporter of commodities; therefore the value of CAD is dependent on the value of these commodities.
- Canada’s major trading partner is the US, which accounts for more than 75% of all exports and 50% of its imports. So, Canada’s economy and the value of the Canadian dollar are highly correlated to the strength of the U.S. economy and movements in the U.S. dollar as well.
It is important for each forextrader to know about these currencies and also about other currencies and economies which have an important impact on the value of these currencies. Learning about their economic scenarios, GDP and factors affecting the GDP, reasons for currency’s stability and volatility, etc. are very important to evolve and grow in the forexmarket. However, each currency has some specific features that affect its underlying value and pricemovements in relation to the other currencies in the forexmarket.