In the dynamic world of finance, currencies play a pivotal role in shaping economies and influencing global markets. While many people are familiar with the commonly traded currencies such as the US dollar or the euro, there are other currencies that hold significant value and strength.
Understanding the characteristics of different currencies can help you to make better-informed decisions when trading the financial markets. This article delves into the most valuable currencies in the world, exploring what makes them strong and how they are traded.
What makes a currency valuable or strong?
A currency’s value is primarily determined by its purchasing power – how much of another country’s currency can be bought using it. This purchasing power, and the strength of a currency, are influenced by several factors.
- Economic stability of the issuing country – A stable economy with a strong GDP, low inflation rates, and robust fiscal policies often supports a strong currency.
- Political stability – Countries with stable governments and predictable policies tend to have stronger currencies as investors consider there to be fewer risks holding their wealth in that country.
- Interest rates – Currencies can be bought and sold at the click of a button and a country with higher interest rates relative to other countries can be expected to attract
foreign capital . In line with the laws of supply and demand, an influx of capital will cause the exchange rate to rise. - Trade balance –If country A has a positive trade balance, and exports exceed imports, its currency will strengthen because parties in other countries need to buy the currency of country A to be able to buy their goods.
Tip: An extremely high interest rate can indicate a country is in distress and deter rather than attract foreign investors.
The top 10 most valuable currencies
Below is a table listing the top 10 most valuable currencies based on their strength and exchange rate against the US dollar:
| Rank | Currency | Code | Country | Exchange Rate (USD) |
|---|---|---|---|---|
| 1 | Kuwaiti dinar | KWD | Kuwait | 3.26 |
| 2 | Bahraini dinar | BHD | Bahrain | 2.65 |
| 3 | Omani rial | OMR | Oman | 2.60 |
| 4 | Jordanian dinar | JOD | Jordan | 1.41 |
| 5 | British pound | GBP | United Kingdom | 1.22 |
| 6 | Cayman Islands dollar | KYD | Cayman Islands | 1.20 |
| 7 | euro | EUR | Eurozone | 1.05 |
| 8 | Swiss franc | CHF | Switzerland | 1.10 |
| 9 | US dollar | USD | U.S.A. | 1.00 |
| 10 | Canadian dollar | CAD | Canada | 0.73 |
Explaining the top 10 strongest currencies
Understanding the reasons behind the strength of these currencies provides insights into global economic dynamics. Each currency’s strength is a reflection of its country’s economic health, political stability, and monetary policies.
Kuwaiti Dinar (KWD)
The Kuwaiti dinar is one of the strongest currencies in the world, primarily due to Kuwait’s substantial
Bahraini Dinar (BHD)
Bahrain’s economy, like Kuwait’s, is heavily reliant on
Omani Rial (OMR)
The Omani rial is backed by Oman’s robust oil production and export. The government has implemented effective economic
Jordanian Dinar (JOD)
Despite Jordan’s limited natural resources, the Jordanian dinar remains strong due to effective
Tip: Monitor Economic Calendars to stay updated on important factors like interest rate announcements or the release of GDP figures.
British Pound Sterling (GBP)
The British pound has historically been a strong currency, supported by the UK’s diversified economy and significant global financial influence. The Bank of England’s monetary policies also play a crucial role in maintaining its strength.
Cayman Islands Dollar (KYD)
The Cayman Islands dollar is strong due to the territory’s status as a major offshore financial centre, attracting significant foreign investment and banking activity.
Euro (EUR)
The euro is the official currency of the Eurozone, comprising 20 of the 27 European Union member states. Its strength is supported by the collective economic power of these countries and the European Central Bank’s monetary policies.
Swiss Franc (CHF)
The Swiss franc is considered a safe-haven currency, known for its stability and the country’s strong financial sector. Switzerland’s neutral political stance and sound economic policies contribute to the franc’s strength.
US Dollar (USD)
The US dollar is the world’s primary reserve currency, widely used in international trade and finance. Its strength is underpinned by the United States’ large economy and its influence on global markets.
Canadian Dollar (CAD)
The Canadian dollar’s strength is linked to Canada’s abundant natural resources, particularly oil, and its stable economic environment. Canada’s sound fiscal policies and trade relations with the US also support the currency.
How to trade currencies
Trading currencies, also known as forex trading, involves trading one currency for another, hoping that exchange rates change, so you can reverse the trade and generate a positive return. The currency markets can be accessed using online trading platforms.
The forex market is the largest global financial market and due to the significant trade volumes experienced, is a highly liquid and dynamic environment.
Final thoughts
Developing an understanding of the different characteristics of currencies can help you to develop a better-thought-out forex strategy. It will help you to understand why a particular currency is perceived as strong and what factors might influence its value in relation to other currencies.
You can trade currencies from anywhere in the world, but wherever you live, it is important to understand the basics of forex trading, including what influences exchange rates and the risks involved.
Learn more about currencies on the eToro Academy.
FAQs
- What is a currency pair?
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A currency pair is a financial instrument that can be bought and sold on a currency exchange. Each currency pair is made up of two currencies. For example, the euro and the US dollar currency pair is referred to as Eurodollar and trade under the ticker symbol EURUSD.
- How many people trade forex?
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According to estimates, there are more than 10 million people trading forex globally. Currency markets are easy to access and because of the large amount of trading activity, liquidity levels are high and fees and commissions are low.
- What’s the most traded currency pair?
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The most traded currency pair is the Eurodollar pairing of the euro and US dollar. The amount of daily transactions is typically around $600 billion and the EURUSD currency pair makes up approximately 37% of total forex market activity.
This information is for educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any financial instruments.
This material has been prepared without regard to any particular investment objectives or financial situation and has not been prepared in accordance with the legal and regulatory requirements to promote independent research. Not all of the financial instruments and services referred to are offered by eToro and any references to past performance of a financial instrument, index, or a packaged investment product are not, and should not be taken as, a reliable indicator of future results.
eToro makes no representation and assumes no liability as to the accuracy or completeness of the content of this guide. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose.