The world’s most traded currency is the US dollar (USD). It says the Bank for International Settlements. USD has an average daily volume of 2.2 billion dollars. It will remain, without a doubt, one of the best currencies to trade in 2021. But, when it comes to Forex trading, we know that currencies are all traded in pairs.
While the EUR/USD leads the most traded currency pairs. Let’s go into more detail each one into the world’s most traded currencies in 2021.
The top 5 currencies to trade in 2021
If we were to talk about a top 5 currencies to trade in 2021, these are the most important ones:
- US Dollar (USD)
- Euro (EUR)
- Japanese Yen (JPY)
- British Pound (GBP)
- Australian Dollar (AUD)
Here we analyze each currency in detail. Also, we are going to explain the factors that are most likely to influence its price.
1. The U.S. dollar (USD), still one of the best currencies to trade in 2021
The official currency of the USA, the U.S. dollar is also the world’s primary reserve currency. Besides, it’s the number 1 on our list of the world’s most currencies to trade. The reason? 87% of all foreign exchange transactions involving the US dollar.
In other words, the US dollar is also considered the main global reserve currency. That’s to say, it’s held by central and commercial banks around the world for investments. And, of course, daily transactions.
It’s time to talk about trading commodities. The markets for these have the US dollar as the standard for pricing. On your Forex trading platform, you can also see this in action by opening an XAU/USD market.
The United States of America has the largest economy in the world. And the price of the USD is dependent on economic performance at home. But, the global nature of the USD means that many external factors come into play.
2. Euro (EUR)
The second most currencies to trade are the Euros. This currency represents 19 of the 27 member states of the European Union. Issued by the European Central Bank, this currency facilitates cross-border transactions.
So, the Euro has an average daily volume of over US$800 million. The fact is you can denominate the volume in USD highlights the Euro’s number 2 position. But there are advantages and disadvantages of a currency adopted by many economies. For example, the ability to pay for goods and services in different countries. And they do this without the need to change currency, which is a great advantage. But the disadvantages include ceding control of monetary policy to the entire bloc. For instance, we recently saw an example of the above problem in Greece. Where they were unable to devalue their currency to avoid a default.
Even though it has been around for over 20 years, we continue watching the Euro in amazement.
3. Japanese Yen (JPY)
The official currency of Japan and ranks third on our list of the world’s most traded currencies. It has an average daily volume of over $550 million. And represents 4.9% of the global foreign exchange reserve.
Issued by the Bank of Japan (BoJ), the Yen it’s considered one of the safe-haven currencies to trade. That’s because of Japan’s super-low interest rates, low debt, and high trading surplus. Which provides stability.
The Japanese Yen drives the global carry trade. Investors borrow in Yen at a low-interest rate. And then reinvest in higher interest currencies in tax havens. By doing this, they lock in a higher interest return on their investment than they are paying on the loan.
The Yen is also known as a safe-haven currency. This is because some reasons:
- During times of financial volatility, investors move their riskier, higher-interest assets.
- And hedge their currency positions with a lower interest, more stable Japanese Yen.
Due to the prevalence of low-interest rates, it’s intriguing to see if the Yen maintains its status.
4. Pound Sterling (GBP)
The British Pound is the official currency of the United Kingdom and its territories. The UK is also the largest Forex trading hub. With London trading sessions accounting for more than 40% of the total sales volume. Issued by the Bank of England, the Sterling is an iconic currency. For instance, plays an integral role within the institutional London Forex trading hub.
In the world of currencies to trade, the Sterling is the fourth most traded currency globally. With an average daily turnover of $325 million, is a major global reserve currency. And trusted by foreign banks for its stability. But the Brexit referendum has completely changed the global currency landscape. Although the vote took place in 2016, many things happened. It has taken years of political wrangling between the UK and Europe to get to where we are now in 2021.
We now wait to see whether British politicians can negotiate a hard or soft Brexit. The outcome of which will determine the direction of GBP trading over the next decade and beyond.
5. Australian Dollar (AUD)
The Australian dollar is the official currency of the self-governing territory of Australia. Is the 5th most traded currency in the world, the main reason is because of the AUD/USD currency pair.
It’s issued by the Reserve Bank of Australia. And is also used by many Australian territories and Pacific Island nations. That’s why because there are not large enough to need their monetary policy.
The Australian dollar is better known as a commodity currency. This is because Australia is a major exporter of commodities such as coal and iron ore. As a result, commodity prices and global demand have a strong influence on its price.
Do you agree with the list? Any other currencies to trade for the rest of this year 2021? Please let us know in the comment section below.