Profile of the Major Currencies
U.S. Dollar (USD):
- World’s foremost reserve currency – used as a universal measure to compare values of any currency traded on Forex, but euro is a strong candidate to displace the dollar as the predominant reserve currency.
- Many of world’s currencies pegged against the dollar e.g. Chinese renminbi and Malaysian Ringgit until July 2005.
- Safe haven currency during international economic and political unrests (e.g. 1997/98 Southeast Asian Economic Crisis).
Euro (EUR):
- Designed to become premier currency in trading as the euro is strongly backed by members of the European Monetary Union.
- However, unequal growth, high unemployment, and government resistance to structural changes within the EU plagued the euro.
- Since the Eurozone consumes more imported petroleum than the US, there have been frequent discussions at OPEC about pricing oil in euro. But Arabian nations plan to launch their common currency in 2010 might affect the decision.
- Rise in euro should dampen Eurozone exports, but there is little sign of this happening yet.
British Pound (GBP):
- Used to be the currency of reference until World War II.
- Heavily traded against EUR and USD, but has limited presence against other currencies.
- Since the introduction of the euro, Bank of England attempts to bring the high U.K. rates closer to the lower rates in the euro zone.
- Possiblity that the pound could join the euro in the near future, but the U.K. referendum isn’t really positive.
Japanese Yen (JPY):
- Much smaller international presence than USD or EUR.
- Very liquid around the world, practically around the clock.
- Natural demand to trade yen mostly due to the Japanese keiretsu, the economic and financial conglomerates.
- Sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate market.
Swiss Franc (CHF):
- The only currency of a major European country belonging to neither the European Monetary Union nor the G-7 countries.
- Swiss economy relatively small, thus it closely resembles the strength and quality of the Swiss economy and finance.
- Typically believed to be a stable currency.
- Used to follow a legal requirement that a minimum of 40% is backed by gold reserves until May 2000, but still strongly believed to be linked to gold prices.