Currency pairs : Most trending in the forex market.

Forex is the largest and most volatile financial market in the world with a variety of currency pairs to select from and trade. To make things easier, let’s go through the ten most traded currency pairs on the market.

Which are the most frequently traded currency pairs in the world?

1. EUR/USD (euro/US dollar)

2. USD/JPY (US dollar/Japanese yen)

3. GBP/USD (British pound/US dollar)

4. USD/CNY (US dollar/Chinese renminbi)

5. USD/CAD (US dollar/Canadian dollar)

6. AUD/USD (Australian dollar/US dollar)

7. USD/CHF (US dollar/Swiss franc)

8. USD/HKD (US dollar/Hong Kong dollar)

9. USD/SGD (US dollar/Singapore dollar)

10. EUR/GBP (euro/British pound sterling)

Most traded currencies

The above top currency pairs are from the Bank of International Settlements (BIS) triennial survey, which was last done in April 2022.

Forex currency pairs explained

Currencies are always traded in pairs because buying or selling one currency, automatically sells or buys another currency. Every currency pair has a base currency and a quote currency which are listed in that order with base currency on the left and the quote currency on the right.

The displayed price for the currency pair shows the amount of quote currency that you will have to spend in order to buy one unit of the base currency.

For example, in the EUR/GBP currency pair, EUR is the base currency and GBP is the counter currency. If the quote price were 0.865 then one euro would be 0.86 pounds.

Types of currency pairs

There are various types of forex pairs. Widely speaking, the forex pairs can be classified into three groups: major, minor and exotic.

Major ones are those that are mainly traded on the markets. The number of major currency pairs is a subject to debate, but most lists will comprise of EUR/USD, USD/JPY, GBP/USD and USD/CHF. The major currency pairs always include the US dollar.

In this context, minors are the commodity currencies which refer to currency pairs that have a value closely linked to a commodity such as oil, coal or iron ore. The commodity currencies on this list are AUD/USD and USD/CAD. Also considered minor currencies are the Scandinavian currencies: DKK – Danish Kroner, NOK – Norwegian Kroner and SEK – Swedish Krona.

Some of the most popular exotic currencies are the following:

HKD – Hong Kong Dollar

MXN – Mexican Peso

SGD – Singapore Dollar

KRW – South Korean Won

ZAR – South African Rand

RUB – Russian Federation Ruble

INR – Indian Rupee

Apart from these three categories, we also have the Cross currencies which are currency pairs which don’t include the US dollar such as the EUR/GBP.

1. EUR/USD

EUR/USD is the most traded currency pair on the market. The popularity of the EUR/USD pair comes from the fact that it is representative of the world’s two biggest economies: the European single market and the US.

The presence of a large number of EUR/USD trades on a daily basis grants the pair with liquidity which usually ends in narrower spreads. Because they allow for large trades that do not significantly affect the market, traders are drawn to the liquidity and tight spreads.

The interest rate determined by the European Central Bank (ECB) and the US Federal Reserve (Fed) serves as one of the major factors affecting the EUR/USD exchange rate. This is why the currency with the higher interest rates tends to be in higher demand as higher interest rates will offer a better return of their original investment.

For example, if the ECB had raised rates higher than the Fed, the euro would have probably increased against the dollar.

2. USD/JPY

Popularly called ‘the gopher’, the USD/JPY currency pair comprises of the USD and JPY. It is the second most traded Forex pair on the market.

As with EUR/USD, USD/JPY enjoys high liquidity as a result of the yen being the most actively traded currency in Asia, and the US dollar being the most commonly traded in the world.

3. GBP/USD

The currencies in this pair are the pound sterling and the US dollar. As with almost any other currency pair, the strength of the GBP/USD is based on the strength of the British and American economies. If the pound is gaining against the dollar then the British economy is most likely growing faster than the American economy.

But if the American economy is stronger than the British economy, then this will help support the greenback.

The price of the GBP/USD is determined by the interest rate levels declared by the Bank of England (BoE) and the Federal Reserve (Fed).

4. USD/CNY

USD/CNY refers to the US dollar and the Chinese yuan renminbi. CNH is the offshore version of the yuan that is traded outside mainland China. Renminbi is also known as CNY and is the currency trading in the onshore Chinese market. The yuan has been declining against the US dollar since the beginning of the trade war between the US and China.

For this reason, the Chinese government has let the yuan depreciate in the hope that cheaper exports will significantly increase market share in countries other than the US. Traders should monitor the US-China trade war since this can impact the price of the currency pair.

5. USD/CAD

The USD/CAD is usually known as the ‘loonie’ as a result of the loon bird being the symbol of the Canadian dollar coin. The Canadian currency is significantly supported by the crude oil price because oil is Canada’s leading export.

As oil is traded in US dollars on the world market, Canada receives most of US dollars through its oil exports. This means that in the event that the price of oil goes up, the value of Canadian dollar becomes stronger against the US dollar.

In general, the US dollar will weaken when the oil price rises because when the dollar becomes weaker, more US dollars are needed to be converted into other currencies to purchase the same amount of oil as before.

Therefore, traders should be vigilant about the price of both Brent crude and U.S. crude when trading USD/CAD as any changes in the oil market will likely be reflected in the exchange rate of this currency pair.

6. AUD/USD

AUD/USD, also known as ‘Aussie’, refers to the Australian dollar against the US dollar. The value of the AUD is highly correlated with the value of the country’s export commodities, for instance, iron ore and natural gas.

A decline in the price of these commodities on the international market would probably trigger a similar decline in the value of the Australian dollar.

The AUD/USD exchange rate is also influenced by the interest rate differentials between the Reserve Bank of Australia (RBA) and the US Federal Reserve.

If American interest rates are low, then the USD would probably depreciate against the AUD and you would need to spend more USD dollars to buy one Australian dollar.

7. USD/CHF

The USD/CHF currency pair is made up of the US dollar and the Swiss franc and is widely known as the ‘Swissie’. USD/CHF is among the most popular currency pairs given that Switzerland has always functioned as a safe harbour for capitals and investors.

The consequence of this is that traders often turn to CHF in times of elevated market volatility, but Swiss franc will usually see less action from traders during periods of increased market stability.

However, in times of increased volatility, it is likely that the price of this pair would fall because the CHF strengthens against the USD after experiencing increased investment.

8. USD/HKD

The USD/HKD puts the HKD against USD. Their trading volume increased more than doubled between 2016 and 2019 going from 1.5% to 3.3% of daily forex transactions.

It could be because Hong Kong protests was the dominant news agenda in 2019. The protests arose from an effort to implement the Fugitive Offenders bill, as well as allegations of police brutality against the residents of Hong Kong.

The protest started a month or so before the time of data collection, which most probably affected the USD/HKD trading volume. One reason could be that the media noise lured more and more traders and speculators to concentrate their attention on the Hong Kong dollar, believing that its value would be influenced by the city news.

The Hong Kong dollar has the US dollar as its reference currency in a special method known as the “linked exchanged rate”. The Hong Kong dollar within a band of HK$7.75 to HK$7.85 to US$1 is allowed to fluctuate, and traders can benefit and make profit along the way.

9. USD/SGD

The USD/SGD is the exchange rate between the US dollar and the Singapore dollar, with the latter listed as the quote currency. It is associated with high volumes and volatility, which create the chance to undertake trading among unusual currency pairs.

The US dollar, traded broadly and held by several central banks, is liked due to its stability for international transactions. However, the Singapore dollar which was introduced as the official currency of the country in 1967 has had a positive reaction partly due to the country`s financial growth and regulatory environment.

The Monetary Authority of Singapore (MAS) has a central role in determining the relative value of the Singapore dollar against the USD by using monetary policy measures including interest rate differential. Geopolitical situations, for instance, US-China trade war conditions, also influence the value of this currency because of the close relationship between the Singapore economy as an export-oriented economy with the Chinese yuan.

Traders better watch out for Fed and MAS announcements as well key US economic indicators when the USD/SGD is trading.

10. EUR/GBP

EUR/GBP, the pair made of euro and pounds sterling, usually appears to be among the most unpredictable pairs. This is because two currencies had a historical relationship given the UK’s proximity to Europe from which trade ties with these two economies were strong.

In spite of the myth of the impossibility of foreseeing the movements for EUR/GBP transactions, the 2019 data made it the 9th most traded currency pair with 2.0% of daily trades.

ECB and BoE announcements should be closely watched as they could influence the exchange rates of the euro and the pound.

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This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.