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.
Start building your G10 trading strategy in a risk-free environment with an IG demo account. You can practise opening and closing positions in response to economic and political events without risking any real capital.
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.
You can start to trade G10 currency pairs by:
- Opening a live CFD or spread betting account with IG
- Practising with an IG demo account
Alternatively, you can continue to develop your knowledge with our dedicated guide to forex trading, or with IG Academy.
