Why Are These Six Currencies To Be Popular For Trading?
The forex market is the largest market in the world and the most liquid market, with trillions of dollars traded on a daily basis by millions of people. For those who are just starting out in the forex market, one of the first steps is to familiarize yourself with some of the more commonly traded currencies and their popularity not only in the forex market but in general as well.
Let’s see why these six currencies become popular for trade? If you want to dive into the forex business, of course, must recognize some of the underlying characteristics and characteristics of each of these currencies.
The most popular currency is the US dollar. Many currencies are always paired in US dollars and often intermediate in currency transactions of two non-dollar States (reference values). The US dollar could be the global (unofficial) reserve currency, held by almost every central bank and investment institutional entity in the world.
Currently, the US dollar is accepted by the global side. The US dollar is used by some countries as the official currency and as opposed to the local currency. In addition, the US dollar can be widely accepted in other countries, as an alternative form of payment, while the countries maintain their official local currency.
The dollar is also an important factor in the forex market for other currencies, where the US dollar can act as a benchmark or interest rate target for countries that choose to peg their currency against USD value.
For example, in 2011, China had its own currency, renminbi (another name of Yuan), still pegged to the dollar. Although the benchmark value to the dollar is still causing much controversy and disagreement from many economists and central bank officials. There are still many States that fix the exchange rate against the USD to stabilize their exchange rate, rather than allowing the free (forex) market to fluctuate its relative value.
One other feature of the US dollar that is important for beginner traders in forex to understand is the dollar is used as the standard currency (reference) for most commodities, such as crude oil and precious metals. So it is important to understand that these commodities not only fluctuate in value because of the basic economic principles of supply and demand but also their relative value fluctuations against the US dollar. The commodity prices are very sensitive to inflation and US interest rates, which directly affect the value of the dollar.
The emergence of the euro currency is still relatively new to as the world’s known currency. The euro quickly became the second most traded currency. In addition, the euro is the second largest reserve currency in the world and as the official currency of the majority of countries in the eurozone.
The euro currency was introduced to the world market on January 1, 1999, with banknotes and coins and entered the circulation three years later.
Along with being the official currency for the eurozone countries, many countries in Europe and Africa peg their currency against the euro, for the same reason that the currency is pegged to the USD to stabilize the exchange rate. Usually because they are trading partners.
Over time, the euro currency becomes a widely used and trusted currency, very common in the forex market, and add liquidity to each currency pair in trading. Euro is generally traded by speculators. Political events in the eurozone often lead to large trading volumes for the euro, especially in relation to countries that see their local interest rates drop drastically.
The yen is Japan’s most popular currency traded in Asia. This currency acts as a benchmark for the assessment of Japan’s export power manufacturing economy. Every Japanese economy moves, so too the yen moves (in some ways).
In addition, many market participants and investors are using the yen to gauge the overall situation of the Pan-Pacific region, such as South Korea, Singapore and Thailand. Because their currency is slightly traded in the global forex market (less popular).
Yen is also famous among forex for its role in carry trade. Japan’s zero interest rate policy rate in the 1990s and 2000s was the basis of traders and investors borrowing yen for no cost and using it to invest in other high yield (yield) currencies around the world. The basis is the difference in interest rates. This carry trade behavior makes the yen popular on the international stage.
Great British Pound sterling, is the fourth most popular currency traded in the forex market. The GBP also plays a major role as a reserve currency because of its relative value compared to other global currencies.
Although Britain is an official member of the European Union, Britain has chosen not to adopt the euro as its official currency in the country for various reasons, including historic pride in pound sterling and maintaining domestic interest rate control. For this reason, pound sterling becomes pure British currency. Forex traders often base this GBP value as a reflection of Britain’s economic power and political stability. Because of its high relative value to its partner, pound sterling is also a major currency benchmark for many countries and as a very liquid currency in the forex market.
The Swiss franc, like Switzerland, is seen by many as a “neutral” currency. More precisely, the Swiss franc is considered a safe place for the financial sector especially in the forex market. There is the fact that the Swiss franc is likely to move in negative correlations to more stable commodity currencies such as the Canadian and Australian dollars, along with the U.S. results. Treasury.
The Swiss National Bank is already known to be quite active in the forex market to ensure that trade in the Swiss franc remains within a relatively tight range, to reduce volatility and keep interest rates stable.
Last on our list is Canadian dollars, also known as Loonie. The loonie is becoming the world’s leading commodity currency, meaning that Canada’s Canalar movement is positively correlated with commodity markets, especially crude oil, precious metals and minerals.
Traders often trade Canadian dollars to speculate on commodity movements or as a safeguard for their holdings of commodity futures contracts.
In addition, Canada lies near the largest consumer base in the world, namely the United States. So that encourages the Canadian economy. The Canadian dollar also correlates with the strength of the US economy and the movement of the US dollar as well.
We’ve outlined six major currencies that became popular among traders and forex investors. Each currency has a feature that affects the value, the underlying factor of price movements relative to other currencies in the forex market. Understanding what and why the currency moves is an important step for traders to be successful in the forex market.