3 Major Currency Pairs and their Importance

Forex trading

The forex market is one that thrives on volatility, as its derivative nature means that investors can profit from currency trading even in a depreciating climate.

This was borne out during the first financial quarter of 2018, as daily forex trading volumes rose by 28% year-on-year in March to achieve a record high. This was largely due to an increasingly volatile economic and geopolitical landscape, which encouraged more buying and selling of currencies across the globe.

The forex market is also dominated by several major currency pairs, which are easily accessible through platforms like Equiti and have relationships that have been built over years of trading. Here are three of the most widely traded currency pairs and their most influential features:

USD/EUR

While the GBP/EUR may be making all the headlines as Brexit negotiations draw to a close, it’s the pairing of the single currency with the U.S. Dollar that remains more important from a global perspective.

After all, America and the single market currently account for a combined 27.5% of the world’s trade in goods, with this number set to rise above 30% once Japan’s recently agreed deal with the EU has been put into practice.

This currency pairing also offers an insight into the respective economic performance of these two regions, with a strong dollar indicative of a faster-growing economy in North America.

With the USD currently trading higher and having embarked on an upward trend ever since December 20th, it’s clear that America is benefitting from greater stability and a rebound in national equity indexes.

USD/JPY

The U.S. Dollar is also featured in our second pairing, and this should come as no surprise given the dominance of the greenback and the fact that it makes up 64% of all known central bank foreign exchange reserves.

As for the Japanese Yen, this is the signature currency of Asia and one that’s considered to be a safe-haven asset during times of global economic uncertainty.

In fact, the Yen appreciated by a staggering 20% in the wake of the great recession and the subsequent recovery, while it even managed to rise following the Great East earthquake that devastated the region back in 2011.

In this respect it provides a perfect foil for the USD, which is known to thrive during times of prosperity. This currency pairing also features noticeably low bid-ask spreads and excellent liquidity, making it the ideal asset for forex novices or those in search of a more balanced portfolio.

USD/GBP

We close with the USD/GBP, which is recognised as one of the most liquid currency pairings in the marketplace.

Bid-ask spreads are certainly tight with this pairing, while it also offers little opportunity for investors to manipulate prices through the practice of arbitrage (which sees the simultaneous buying and selling of currency as a way of capitalising on differing prices).

Ultimately, it’s the liquidity of this pairing that makes it such a universally popular asset for investors, while the widespread availability of trading instruments has also established it as a common choice for newcomers to the market.

Just remember; the USD/GBP has largely enjoyed an upward trajectory since the EU referendum vote in 2016, since which time the pound has continued to trade in a narrow range against its rivals.

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

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