What moves G10 currencies?

G10 currencies are among the world’s most popular and liquid currencies – although you can find most world currencies on the forex market, there are only a few that are actively traded. The list includes the currencies of some of the world’s largest economies such as the US, the EU, the UK, Japan and Australia. Learn more about what the G10 currency pairs are, and which factors can impact their exchange rates.

GBP
Source: Bloomberg

What are the G10 currencies?

The G10 currencies is the name given to a group of currencies that are among the most used and traded currencies in the world. The G10 currencies list is as follows:

  • United States dollar (USD)
  • Euro (EUR)
  • Pound sterling (GBP)
  • Japanese yen (JPY)
  • Australian dollar (AUD)
  • New Zealand dollar (NZD)
  • Canadian dollar (CAD)
  • Swiss franc (CHF)
  • Norwegian krone (NOK)
  • Swedish krona (SEK)


The origin of the term ‘G10 currencies’ is unclear. While it is commonly believed that it correlates to the G10 countries, there is not a complete match between the two groups. The G10 countries are a group of industrialised countries that consult on economic and financial matters, which includes Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

As Belgium, France, Germany, Italy and the Netherlands are members of the European Union, and use the euro, they are represented in the G10 currencies group by a single entry. This leaves spaces for other currencies to fill the G10 currency list – the Australian dollar, the New Zealand dollar and the Norwegian krone.

What moves G10 currency pairs?

The volatility of forex markets can provide traders with a range of benefits, including the potential for increased profit, but also comes with increased risk, which makes it important to learn what moves forex markets. Knowing what has caused price fluctuations in the past, can help traders forecast the future price movements of their chosen currency pair. The main factors that influence G10 currency price movements are:

Commodity prices

Some of the G10 currencies are linked to the price movements of commodities. It is natural for some currencies to be correlated with commodity prices because their economic growth is directly related to exports or a reliance on imports.

For example, the Australian dollar tends to be positively correlated with the price of gold and copper. Australia is the second largest producer of gold and the fourth largest copper producing country, so any changes to the demand for gold or copper can impact the health of its economy

Similarly, the Canadian dollar is oil linked because it is a net oil exporter, so any decline in the price of oil will often have a negative toll on the Canadian economy. The Japanese yen is also commonly linked to oil because it is a net importer, which means that Japan’s economy would benefit from declining oil prices. This relationship can cause exaggerated price movements in the CAD/JPY pairing.

A lot of commodity prices are sensitive to the behaviour of China – although it is classified among the emerging market (EM) currencies, it is one of the largest importing nations, and an economic superpower. Any improvement in the Chinese economy contributes to an increased demand for commodities, so the currencies of exporting nations – such as Australia and Canada – are likely to increase in comparison to other currencies. However, if China’s economy slows down, commodity-linked G10 currencies will suffer the most.

There will be times when these relationships break down, and traders need to actively monitor these correlations through inter-market analysis.

Central banks

Central banks control the base interest rate of a country, and their decisions frequently trigger large movements in currency prices. By understanding and making an educated guess about future rate hikes or decreases, traders can predict the future direction of a given currency pair.

When a central bank raises interest rates, investors take this as a sign that the country’s economy will be boosted and the native currency will rise. For example, between 2002 and 2005 the central bank of New Zealand increased its interest rates, while Japan kept its interest rates low, which caused NZD/JPY to rally as New Zealand became more attractive to investors.

As the most traded currency in the world, any interest rate changes by the US’s Federal Reserve will play out across dollar crosses. Historically, both sterling and the euro are the most sensitive G10 currencies to US interest rate hikes.

Economic data releases

The release of macroeconomic data can be an indicator of how well an economy is doing and provide markets with confidence in the country’s currency. For example, the euro was one of the best performing G10 currencies in 2017 due to high growth numbers and the eurozone’s lowest unemployment level since the 2008 financial crisis.

Other G10 currencies see similar levels of volatility caused by domestic data releases: Norwegian inflation reports have triggered large moves in the NOK, while Australian gross domestic product (GDP) and employment data has caused larger moves in AUD than some US data releases have triggered in the US dollar.

Economic data releases of the larger G10 currency nations can cause price movement across other G10 currencies, as well as EM currencies. For example, the US non-farm payrolls (NFP) data release often causes immediate changes to G10 currency pairs such as EUR/USD.

Political backdrop

A number of G10 currencies have seen volatility caused by political uncertainty in their respective countries. As forex is traded in pairs, a currency’s value is calculated in relation to another currency, which means you need to be aware of the political outlook of both countries.

For example, the impact of Brexit on sterling has been severe and long-lasting, making it unlikely that we will see the pound recover completely until there is political stability. However, it has managed to remain one of the best performing G10 currencies because many of its major partners are experiencing political uncertainty as well.

In January 2018, the US dollar was one of weakest G10 currencies. Despite predictions of interest rate rises and positive economic data, the currency was struggling because of political turmoil caused by US President Donald Trump’s decisions on US immigration. Meanwhile, the euro had experienced periods of instability caused by elections in France and Italy. The weakened values of the US dollar and the euro helped sterling to make its relative gains.

Economic crisis

While some currencies are historically associated with global growth, such as GBP, some G10 currencies exhibit a negative correlation with global economic health. Economic slowdowns tend to hit most currencies hard, but when investors are worried they turn to ‘safe-haven’ currencies such as JPY and CHF.

Given the stability of the Swiss government and its financial system, the Swiss franc often experiences increased demand during economic downturns – especially due to the country’s independence from the rest of the EU.

Similarly, investors gravitate toward the Japanese yen, strengthening the currency during periods of risk.

Top G10 currency pairs to trade on the forex market

G10 currencies are positioned as such because they are also among the most liquid forex pairs, meaning that traders can buy or sell them without significantly impacting their exchange rates.

Due to their popularity, most major forex pairs consist of G10 currencies – examples include AUD/USD, EUR/USD, GBP/EUR, GBP/USD, USD/CAD, USD/CHF and USD/JPY.

However, major pairs aren’t the only G10 currency crosses worth watching. If you’re relatively new to forex trading, the high levels of market volatility on major pairs can seem daunting, and it can be a good idea to start slowly. You could look at trading a less volatile pairing, such as AUD/NZD, or deferring to strongly correlated currencies. For example, EUR/CHF and EUR/USD have an inverse relationship, so usually if EUR/USD is rallying, then EUR/CHF is experiencing a downturn.

Whichever G10 currency pair you decide to trade, it is important to understand the factors that can contribute to price movements. By combining your knowledge of what moves G10 currencies with technical analysis, you can learn to identify potential trading opportunities.

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