An FX market is a place where all currencies are traded. However, the volume of trade undertaken in different currencies varies greatly. As a result, even though hundreds of currencies globally exist, almost two-thirds of the massive 4 trillion dollar forex turnover is transacted in only four currency pairs! These four currency combinations are known as the main currencies.
The big 4
EUR/USD
The EUR/USD currency pair is the world’s most actively traded currency pair. Almost all of the world’s biggest banks have specialized traders who only trade in EUR/USD. Even though the Euro was only recently launched as a currency, it has quickly risen to popularity and has become a component of the world’s most traded currency pair.
It is critical to realize that the Euro is the base currency in the EUR/USD pair. This implies that all EUR/USD contracts are denominated in Euros. This contrasts with the fact that price changes and profit and loss calculations are denominated in US dollars.
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USD/CHF
The Swiss franc is considered a safe-haven currency. When the world views the United States dollar as a secure investment, the USD/CHF pair declines in value. Investors flock to the Swiss franc when the US dollar appears to be in trouble.
However, it should be emphasized that the value of this pair is heavily reliant on capital flows in the Swiss banking system, which is renowned internationally for its secrecy.
USD/JPY
After the USD and the EURO, the Japanese yen is the world’s third most actively traded currency. As a result, the USD/JPY pair is extremely important. According to some estimates, trading in this currency pair accounts for almost 20% of all forex activity globally. Furthermore, one must recognize that the USD/JPY currency pair is quite volatile.
It is infamous for remaining range-bound for an extended time before exhibiting sharp variation as it transitions to new homeostasis at a different price level. This currency pair is the most vulnerable to change in the US interest rate.
GBP/USD
The British economy is the most important, and globally, the relationship between the Great British Pound and the United States Dollar is critical. This is one of the most established currency pairs on the market. As a result, it has a title known as the “Sterling.”
The Sterling has a large trading volume, and the GBP/USD pair accounts for around 8% of the trading volume in the forex markets. This currency pair is very sensitive to news about the US dollar.
Conclusion
The movement of these pairs is the most closely observed metric in the forex market and is regarded as the market’s overall barometer. As a result, when currency experts discuss whether the forex market is growing or declining in general, they refer to these pairs. In this article, we will see the 4 major currency pairs.
These four currency pairs are also highly correlated with a wide range of other currencies. As a result, any movement in these currency pairs is likely to affect the entire forex market and thus the entire world.
