In the ever-evolving landscape of global finance, foreign exchange (forex) markets stand out as the most dynamic and largest asset market in the world. Recent data reveal that currency trading turnover has reached a record US$7.5 trillion per day, highlighting the immense scale and liquidity of the forex market.
Amid this vast array of currencies, a select few currencies consistently dominate.
Understanding the most traded currencies and the factors contributing to their popularity can offer valuable insights into the broader economic narrative.
For investors and traders, here are the top 10 most traded foreign currencies and the reasons for their popularity.
Top 10 Most Traded Currencies Globally
Rank
Currency
Symbol
1
US Dollar
USD
2
Euro
EUR
3
Japanese Yen
JPY
4
British Pound
GBP
5
Chinese Renminbi
CNY
6
Australian Dollar
AUD
7
Canadian Dollar
CAD
8
Swiss Franc
CHF
9
Swedish Krona
SEK
10
New Zealand Dollar
NZD
Read Also: Three Things To Understand About The Market Before You Start Forex Trading
#1 US Dollar (USD)
The US Dollar (USD) has long held its position as the world’s primary reserve currency, a status it has enjoyed since the Bretton Woods Agreement in 1944. The agreement established the dollar – also referred to colloquially as the “greenback” – as the backbone of the global financial system.
By the end of 2023, the US dollar was still considered a dominant store of value. That’s borne out by the fact that approximately 54% of the world’s allocated foreign exchange reserves are in US Dollars.
Additionally, nearly 90% of global forex transactions (or pairings) involve the dollar, making it the most traded currency in the world.
Despite ongoing debate about de-dollarisation (amid a geopolitical split between the Global South and the West), the US dollar’s hegemony remains unchallenged in the near to medium term.
#2 Euro (EUR)
The euro (EUR) remains the second most traded currency globally, accounting for 31% of forex transactions.
Despite facing political and economic challenges within the European Union (EU), the euro benefits by being the common store of exchange for the euro zone currency bloc, which includes 19 European countries.
The euro also benefits from the region’s significance in global trade. Introduced on 1 January 1999, the euro is just over 25 years old—not that old in terms of global currencies.
Recently, the euro has been weakening against the US dollar as the European Central Bank (ECB) has already cut interest rates, the first time it has done so in seven years.
#3 Japanese Yen (JPY)
The Japanese Yen (JPY) is often seen as a “safe haven” currency, particularly during times of global financial instability.
Japan’s strong economic fundamentals and low interest rates make the yen attractive for carry trades (where investors borrow cheaply in yen and buy higher-yielding currencies).
However, in the past few years, the yen has been languishing near its historic lows against the US dollar. This weakness is primarily due to the wide interest rate gap between Japan and the US. Despite the Bank of Japan (BOJ) raising interest rates for the first time in 17 years, Japan’s new policy rate remains between 0% and 0.1%.
Japan’s policymakers are still trying to stimulate inflation, which means that the BOJ’s monetary policy is likely to remain easy in the quarters ahead.
Read Also: The End Of Japan’s Negative Interest Rate Policy: What It Means For Investors
#4 British Pound (GBP)
The British Pound (GBP), also known as sterling, is the fourth-most traded currency in the world and the official currency of the United Kingdom (UK).
It has a long history as a significant currency, with origins dating back to the eighth century and was formerly the world’s reserve currency before the rise of the US dollar.
That was mainly due to its position as the hegemonic superpower of the world and the influence of the British Empire on global trade and markets.
The 2016 Brexit referendum—in which the UK voted to leave the EU—saw the pound weaken over the next few years. Today, the GBP is around 10% weaker than the USD than it was before the referendum.
#5 Chinese Yuan (CNY)
The Chinese Yuan (CNY), also known as the renminbi, is steadily climbing the ranks of the world’s most traded currencies. That’s understandable as it is the world’s second-largest economy and as efforts continue to try to internationalise the currency.
China has implemented various stimulus measures, such as reducing the reserve requirement ratio (RRR) for banks, to spur bank lending in its slowing economy.
The Chinese government continues to push for the currency’s internationalisation through initiatives like the Cross-Border Interbank Payment System (CIPS) and strategic trade partnerships.
However, because the CNY isn’t freely convertible (like, say, the Hong Kong Dollar) and there are capital controls on inflows and outflows in China, it’s harder for the currency to make rapid progress.
#6 Australian Dollar (AUD)
The Australian Dollar (AUD) benefits from Australia’s abundance of natural resources and it’s a popular currency with commodity traders.
Recently, the Australian dollar has experienced volatility due to global economic conditions and domestic factors.
There are expectations of a recovery in 2024 as global inflation moderates and central banks, including the Reserve Bank of Australia (RBA), adjust their monetary policies.
The delay in rate cuts by the RBA until the end of 2024, coupled with positive developments in global financial markets and the world’s appetite for Australia’s minerals, could boost the AUD’s value.
#7 Canadian Dollar (CAD)
Similarly, the Canadian Dollar (CAD) is mainly seen as a big commodity-linked currency given the country’s rich reserves of oil and gas.
As a result, its currency is influenced by global oil prices and the domestic performance of its economy, which is expected to remain stable in 2024.
The Bank of Canada’s cautious approach to monetary policy and strong economic fundamentals will support the CAD’s performance.
#8 Swiss Franc (CHF)
Known for its stability, the Swiss Franc (CHF) is a “safe haven” currency. Switzerland’s political neutrality and strong financial system contribute to its attractiveness.
However, recent developments in 2024 have seen the CHF underperform against major currencies. The Swiss National Bank (SNB) ceased its intervention policy and lowered its interest rate from 1.75% to 1.25%, which has made the Franc less attractive to investors.
Additionally, a decline in inflation and changes in the global economic environment have further weakened the Franc.
#9 Swedish Krona (SEK)
Sweden’s strong economic performance and innovative economy make the Swedish Krona (SEK) a popular choice in the forex market.
The Krona benefits from Sweden’s sound fiscal policies. However, the SEK has recently faced challenges due to geopolitical tensions in Europe and rising energy prices.
Additionally, Sweden’s central bank – Riksbank – was the second major central bank to cut interest rates in recent months.
#10 New Zealand Dollar (NZD)
The New Zealand Dollar (NZD) is favoured for its high interest rates and stable economic environment. It is widely traded due to New Zealand’s significant trade relationships.
While there is an anticipation of a rate cut by the US Federal Reserve in the second half of this year, the Reserve Bank of New Zealand (RBNZ) is expected to maintain a stable policy.
Looking Ahead – Factors To Watch
As the global economy continues to evolve, several factors will influence the dynamics of currency trading. Geopolitical developments, such as ongoing tensions between major powers and economic policies responding to global crises, will play crucial roles.
Technological advancements, particularly in digital currencies and payment systems, could also reshape the forex landscape.
Monitoring these factors, along with the various monetary policies of central banks, will be essential for understanding current and future trends in currency markets.
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