In the foreign exchange (forex) market, currencies are always traded in pairs, with one currency being bought and the other sold.
The price of a currency pair indicates how much of the quote currency is needed to buy one unit of the base currency.
Based on the 2022 triennial survey by the Bank for International Settlements (BIS), here are the six most traded currency pairs:
USD/JPY (US Dollar/Japanese Yen)
Referred to as trading the “Gopher,” the USD/JPY holds a market share of 13.5%.
This pair is sensitive to political sentiment between the U.S. and the Far East. It tends to be positively correlated with USD/CHF and USD/CAD due to the U.S. dollar being the base currency.
Interest rate changes by the Bank of Japan significantly impact this pair.
EUR/USD (Euro/US Dollar)
Known as trading the “Fiber,” the EUR/USD is the most traded currency pair, accounting for 22.7% of global market share.
Its high liquidity and tight spreads are driven by the prominence of the European and U.S. economies.
The pair often shows a negative correlation with the USD/CHF and a positive correlation with the GBP/USD.
GBP/USD (British Pound/US Dollar)
Known as trading the “Cable,” the GBP/USD pair represents 9.5% of the forex market.
Its trading volume reflects the strength of both the British and U.S. economies.
The pair has a positive correlation with EUR/USD and a negative correlation with USD/CHF. Economic and political events, such as the Ukraine war, have influenced the value of the GBP.
USD/CNY (US Dollar/Chinese Yuan)
The USD/CNY pair represents the relationship between the U.S. dollar and the Chinese yuan, with a market share of 6.6%.
The volatility of the U.S.-China trade relationship provides speculative trading opportunities. Changes in this relationship can significantly affect the pricing of this pair.
USD/CAD (US Dollar/Canadian Dollar)
Trading the “Loonie,” USD/CAD has a market share of 5.5%. The pair’s value is influenced by the interest rate differentials between the U.S. and Canada, as well as the price of oil, which is a major economic driver for Canada.
It has a negative correlation with pairs like AUD/USD, GBP/USD, and EUR/USD, where the U.S. dollar is the quote currency.
AUD/USD (Australian Dollar/US Dollar)
Known as trading the “Aussie,” the AUD/USD pair captures 5.1% of the forex market share.
Australia’s economy heavily depends on exports, so commodity prices can impact the AUD/USD value.
The pair tends to have a negative correlation with pairs where the U.S. dollar is the base currency, such as USD/CAD, USD/CHF, and USD/JPY.
Why These Pairs?
Many of the top currency pairs include the U.S. dollar due to the economic strength and stability of the U.S. economy.
Similarly, the euro is widely traded because of the significant role of the European Union in the global economy. The high liquidity and trading volume of these pairs offer traders tight spreads, making them attractive for trading.
Understanding these currency pairs’ dynamics and keeping up with global economic developments are essential for success in the forex market.
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