You might assume the strongest currency would be the US dollar (USD) or British pound sterling (GBP) as both hold significant influence over other currency pairs. In fact, the top 10 most traded currencies pairs all include either the US dollar or the pound sterling and the two together devise the most traded currency pair: GPB/USD.
However, strength here refers to value, and as you’ll learn in this article, there are several currencies valued much higher than the US dollar and pound sterling.
It is important to understand how currency strength is determined. Currency strength is measured by the amount of goods and services that can be bought and the amount of foreign currency received in exchange for one unit of the national currency.
What makes a currency strong?
A currency’s strength is determined by many factors including the inflation and growth in its country’s economy and the amount of foreign currency that can be exchange for one unit of said currency.
The US dollar is widely used as the fixed base currency because of its high utility across foreign markets and large reserves in foreign banks. In fact, US dollars make up over 60% of the world’s central bank reserves and 90% of all forex trades.
However, the relative holdings of the US dollar do not make it stronger than other currencies, only more influential. The Japanese yen (JPY), while valued at around one cent when up against the US dollar, is also considered one of the world’s most influential and stable currencies.
It is important to keep in mind general currency strength, or value, does not always denote a strong economy. To truly judge a currency’s strength, you need to evaluate multiple factors including supply, demand, inflation and price changes over a long period of time.
How does currency strength affect forex?
In forex trading, a currency’s strength is relative to another foreign currency in the given pair. The US dollar and the euro (EUR) are the two currencies with the largest reserves around the world and therefore are among the most impactful currencies on the forex market.
Foreign exchange occurs wholly around the strength of various currencies. This can be seen immediately in how currency pairs are displayed, with the stronger currency listed first and the weaker currency listed second. The spread is then calculated by the ever-changing strength of both currencies.
Strongest currency pairs
The EUR/USD pair is arguably the most significant forex pair because both currencies are reserved in large amounts around the world and used in many foreign markets. As mentioned above, the US dollar is the fixed base currency across the global economy. Likewise, the euro is the official currency in 19 of the 28 countries in the European Union.
Currency pairs in the forex market are divided into three categories:
- Major currency pairs are the most frequently traded and usually include the US dollar as either the base or quote currency.
- Minor currency pairs are ones that still have a large volume of trades every day but do not include the US dollar. These do include one of the world’s other three major currencies: The euro, pound sterling, or Japanese yen.
- Exotic currency pairs include other forex pairs traded less than major and minor pairs. They usually feature one of the four major currencies along a less-frequently traded currency or one from an emerging market. These currencies represent smaller economies that have less liquidity but higher volatility.
Examples of exotic currency pairs include a major and exotic currency like the pound sterling and Swedish krona (GBP/SEK) or two exotic currencies such as the Norwegian krone and krona (NOK/SEK).
Discover the 10 most traded currency pairs in the world.
Difference between a currency and a currency pair
You’d be forgiven for assuming that any “major currency” would be stronger than all others. The general stability and dominance of both the US dollar and the Euro throughout world markets mean the two currencies have the most influence over foreign economies, but as mentioned, that doesn’t mean they’re the most valuable.
In fact, because of the prominence both the U.S. Dollar and the Euro have in other economies, if they were to sharply rise in value, foreign economies would suffer as a result. Exports from the US and European Union would become more expensive, and imports from other foreign nations would cheapen. Countries like Japan and China frequently buy US dollars for their own federal reserves to weaken the dollar and keep their exports to the US more valuable.
Currency rates are determined by the amount of demand for that specific currency, and there is plenty of US dollars to go around. If a country is able to export their own products to countries like the United States or those who use the euro, their own currency will perform well against the two.
There are way too many factors that affect individual currencies and forex pairs to mention them all in this article, but a general indication of how valuable a country’s currency is determined by how valuable its exports are.
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The top 10 strongest currencies
Below is a list of the top ten strongest currencies as of May 2023, you’ll notice most countries included on the list have strong exports or international business dealings that aren’t hampered by competition. On the flip side, some countries you might expect to see on the list like China and India keep their currencies undervalued to remain competitive in international markets, as they do not hold a monopoly on the products they export.
10: United States dollar (USD)
The US dollar is both the world’s most traded currency and largest percentage of federal reserve currency around the globe. At number ten on this list, only nine currencies can have a single unit exchange for more than one dollar.
Because of its global dominance, the dollar is used to price many commodities such as oil and precious metals like gold and silver. It’s also the most widely traded currency on the global foreign exchange market. USD is involved in 88% of all forex trades, according to the Bank of International Settlements.
9: Euro (EUR)
The second largest reserve currency, the euro is the official currency of the European Union. The economic strength of the 27 countries in the EU give the euro not just stability but value as well. Out of those countries, the euro is the official currency for 20 of them, but they all accept euros for transactions. Countries with other official currencies have their values linked closely with the euro because of how closely trade is linked among them.
One euro is worth about 1.08 US dollars. Despite the near-parity, the euro-dollar currency pair is the most traded pair on the foreign exchange market. Almost a quarter of all forex trades are with EUR/USD.
8: Swiss franc (CHF)
The Swiss franc is the eighth strongest currency in the world, with one franc being equal to 1.11 US dollars. The franc is the official currency of Switzerland, a country famous for its political stability and strong banking sector.
The stability and wealth of Switzerland make it a popular reserve currency for other countries to hold because of the stability of its exchange rate. The franc was briefly pegged to the euro from 2011 to 2015 and has been free-floating ever since.
7: Cayman Islands Dollar (KYD)
The Cayman Islands has the sixth strongest currency in the world. The Caribbean British overseas territory is famous for providing offshore banking license for thousands of companies.
The Cayman Islands dollar has been pegged to the US dollar since 1974. One Cayman Islands dollar equals 1.20 US dollars.
6. Gibraltar pound (GIP)
Gibraltar is a city-state British Overseas Territory located at the southern tip of Spain. The country covers just 2.6 square miles, but it was once a major port for ships passing between the Mediterranean Sea and Atlantic Ocean.
The Gibraltar pound was introduced in the 1920s and is pegged at par to the British pound.
5: Pound sterling (GBP)
The British pound is the official currency of the United Kingdom and many of Britain’s overseas territories. Some of these territories have their own pegged to the pound.
The pound specifically is valued higher than the US dollar because of Britain’s low inflation. At one point the pound was worth nearly five US dollars, but it has depreciated throughout the last century as Britain’s own GDP has retreated to the sixth-largest economy.
4: Jordanian dinar (JOD)
The Jordanian dinar is a significant outlier in this group. Jordan has struggled to grow its economy, and as a nation it holds significant debt. There are few competitive exports coming out of Jordan, however, the Arab country managed to peg its currency to the US dollar over 20 years ago. This has provided the Jordanian dinar relative stability despite the country’s poor economy.
3: Omani rial (OMR)
The Omani rial is the third-strongest currency, with a single rial worth 2.60 US dollars. The rial was introduced in the 1970s and pegged to the US dollar in 1986.
The significant jump in value between the fourth-place Jordanian dinar and the Omani rial is due to the country’s strong petroleum production. Sharing the tip of the Arabian Peninsula with Yemen, the country has ample access to the valuable natural resource.
2: Bahraini dinar (BHD)
Bahrain sits on the Persian Gulf and, like Oman, is a major exporter of crude oil. Other major exports include textiles and aluminium. Bahrain entered a free trade agreement with the US in 2006.
Since 1986 the Bahraini dinar has been pegged to the US dollar at 2.652. That means a single US dollar equals 0.376 dinar.
1: Kuwaiti dinar (KWD)
The title of the world’s strongest currency belongs to the Kuwaiti dinar.
Also located on the Persian Gulf, Kuwait receives over 80% of its global revenue from the oil industry. Many of these sells take place with the US, giving Kuwaiti and the other top three currencies on this list large reserves of US dollars to back their own currencies.
The Kuwait dinar is not widely available for currency trading and even if it was, the stability of the currency makes trading the instrument a low-yield investment when factoring in fees and commissions.
The Kuwait dinar was previously pegged to the US dollar. Since 2007 it has been pegged to an undisclosed group of currencies managed by the Kuwaiti Currency Board.
