G10 currencies are perhaps among the most popular and liquid currencies being used worldwide. They’re practically the lifeblood that runs the entire global economy. If you’re not familiar with what the G10 currencies are, then this guide is for you. Learn more about the G10 currency pairs and which factors can impact their exchange rates.
What are the G10 Currencies?
The G10 currency is actually a group of selected major currencies that are used in international marketplaces. The name of the group originated from a meeting of finance ministers from the G10 nations on the 10th of September of 1975. The group was created by the Bank for International Settlements in Basel, Switzerland. The grouping of all 10 of these currencies was made to better reflect how the global financial markets of the 70s and 80s were structured.
At the time, the G10 currencies were the US dollar, the Swiss franc, the Japanese yen, the Deutsche Mark, the UK pound sterling, the Belgian franc, the Swedish krona, the Dutch guilder, and the French franc. Over the years, additional currencies have been added and removed from the G10. The G10 currencies are:
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)
What Influences the G10 Currencies?
The G10 currencies are the most commonly used currencies in the international market and are accordingly the most liquid currency markets. They are also highly stable and predictable, enabling investors to invest with less risk in these marketplaces. The G10 currencies are identified by their high liquidity and deep market depth, so there’s no worry about being unable to cash out of your investment or trade your G10 currency pairs if you need to.
The value and exchange rates of G10 currencies are influenced by a number of factors.
Economic Factors
Economic factors have the greatest influence on the value of G10 currencies. Strong economies typically lead to investors having more confidence in the currency, which results in a greater value. When a country’s economy is in a downturn, there’s typically a pullback on currency values. Economic factors that influence G10 currencies include:
Interest Rates
Inflation Rates
Wages
Unemployment
Trade Deficits
Balance of Trade
Political Factors
Political factors also influence the value of G10 currencies. In the same way that economic factors play a role, political factors can trigger confidence or uneasiness among investors, which can then impact the cost of G10 currency pairs. Political factors include:
Economic Sanctions
Military Conflicts
Military Expenditures
Confidence in Government
Confidence in Politicians
Changes to Government Leadership
Natural Disasters and Political Upheavals
Natural disasters and political upheavals can also cause disruption in the global currency markets and, in turn, can result in fluctuations in the value of G10 currencies. Natural disasters and political upheaval may also impact a nation's economy, which could cause a drop in the value of a G10 currency for a short period of time.
Currency Arbitrage
Currency arbitrage is both a cause and an effect of currency fluctuations. Currency traders may take advantage of fluctuations in a particular currency pair by short-selling one currency and buying the other currency, likely resulting in a profit when the currency is rebalanced.
It’s important to note, however, that currency arbitrage can quickly correct for any change in the value of a G10 currency pair. As a result, currency arbitrage is typically done for small amounts of money and is also only performed for short periods of time.
Currency Volatility
Currency volatility occurs when there is a significant change in the value of a currency. Volatility can occur on a day-to-day basis if the market has strong emotions towards a currency pair and is easily swayed by news, rumours, or speculation.
Volatility can also occur in the long term. If a country’s economy is unstable, then its currency may also become volatile. The same can be said if a country’s political structure is unstable. These long-term changes to a country’s economy and political structure can cause large swings in currency values over a period of time.
Currency Forecast and Analysis
Forex traders and investors can take advantage of many different currency forecasts and analysis tools in order to predict future fluctuations and determine the direction of a G10 currency pair. Relevant factors may be identified, such as political events, economic forecasts, interest rate actions, and other major events and news.
Forecasts and analysis can help identify when volatility is likely to occur and what the likely impact is going to be on a G10 currency pair. The usefulness of currency forecasts depends on the quality of the information on which the forecasts are based.
Paring Down the G10 Currency List
As mentioned earlier, the G10 currency list has changed over the years, with some currencies being removed while others have been added.
The G10 currencies are used as a baseline by many of the major banks and financial institutions around the world in order to set the value of other currencies.
Forex traders and investors will often use the G10 currencies as a base for trading other, less commonly traded currencies. When a trader or investor is interested in tracking the value of a particular currency, the trader or investor will typically use a G10 currency as a benchmark due to the ease of access to G10 currency pairs in the marketplace.
Traders and investors can also use the G10 currencies to calculate the value of other currencies. For example, an investment bank may set the value of an Australian dollar against the US dollar. By using the exchange rate for Australian dollars to US dollars, the investor can use this to determine the relative value of the Australian dollar and can then place trades accordingly.
However, it’s important to note that the G10 currencies are just a group of the most commonly traded currencies in the world, which are used for comparison purposes.
G10 Currency Pairs Explained
Every one of the currencies in the G10 group is heavily traded against most of the others, with few exceptions. For the most part, these currencies are used as reserve currencies, with the exception of the Canadian dollar and the Australian dollar. Within the G10, you’ll find that most of the currencies have a strong inverse relationship with each other. The exception to this rule is the US dollar and the Euro, which are the largest and second-largest reserve currencies in the world.
Some of the major G10 currency pairs traders use include:
USD/EUR – The US Dollar against the Euro
USD/JPY – The US Dollar against the Japanese Yen
GBP/CHF – The British Pound against the Swiss Franc
GBP/USD – The British Pound against the US Dollar
EUR/JPY – The Euro against the Japanese Yen
EUR/GBP – The Euro against the British Pound
CAD/JPY – The Canadian Dollar against the Japanese Yen
CAD/CHF – The Canadian Dollar against the Swiss Franc
CAD/EUR – The Canadian Dollar against the Euro
AUD/JPY – The Australian Dollar against the Japanese Yen
AUD/NZD – The Australian Dollar against the New Zealand Dollar
AUD/CAD – The Australian Dollar against the Canadian Dollar
NZD/JPY – The New Zealand Dollar against the Japanese Yen
NZD/CAD – The New Zealand Dollar against the Canadian Dollar
NZD/CHF – The New Zealand Dollar against the Swiss Franc
SEK/CHF – The Swedish Krona against the Swiss Franc
Norwegian Krone (NOK)/CHF – The Norwegian Krone against the Swiss Franc
Forex traders will often use these currency pairs as a baseline in order to determine the value of other currency pairs. Currencies traditionally trade in pairs with the exception of the US dollar, which is typically the least expensive of the G10 currencies.
The Deutsche Mark was the official currency of Germany until the introduction of the Euro in 1999. The Deutsche mark was then replaced by the Euro and was replaced by the Euro as the official currency of Germany. The Euro replaced the Deutsche Mark as the official currency of countries in the European Union.
The European Union, formerly known as the European Community, was formed in 1993 and is the result of an agreement between 14 European nations to reduce trade barriers and to improve the European monetary system. The European Union was designed to be an economic, judicial, and political union, which would allow trade between member countries to be harmonized and promoted.
G10 Currencies vs Non-G10 Currencies
The G10 currencies make up the largest portion of the world’s global currency reserves. The G10 currencies are considered to be a benchmark for the value of other currencies. For example, the US dollar has been the benchmark for many other currencies, including the Chinese Yuan and the Mexican peso.
For many countries, being removed from the G10 currencies can be perceived as a downgrade to their status. When new currencies are added to the G10 currencies, though, it can be viewed as an upgrade for their status and a sign of their strengthening and growing status as a financial market.
In either case, it provides a new way for the country to participate in global trade and financial markets.
When a country is added to the G10 list of major currencies, it can have a significant impact on the value of the currency, which may, in turn, impact the country’s economy. In order to gain the respect and trust of other international market participants, the country must show a strong economy, a well-managed and stable trading environment, and a stable banking system.
The Future of the G10
As the world becomes more globalized, the growing importance of G10 currencies is only likely to continue. The G10 currencies are the most commonly traded currencies in the international market and are also the most liquid. As long as the G10 currencies continue to be the world’s most commonly traded currencies, their importance in the global economy is likely to continue.
In addition, the G10 currencies are also the most stable and predictable. There is one less worry about being unable to cash out of your investment or trade your G10 currency pairs if you need to, in comparison to the less liquid and less stable currencies. This stability is one of the reasons why G10 currencies are such a commonly traded commodity in the financial markets.
The G10 currencies also have a long history of trading in the markets, as well as being a standard base currency for many of the world’s major financial institutions.
The Future of the G10 vs Cryptocurrency
The major currencies in the G10 group of currencies are unlikely to be replaced any time soon. As with any currency, the value of these currencies will fluctuate depending on political, economic, and social factors.
The end of the US dollar as the world’s reserve currency will likely result as the end of the G10 currencies. Alternative currencies have been proposed in the past, such as the Special Drawing Rights, or SDR. However, the SDR was never put into practice, and it is not likely to replace the G10 currencies any time soon.
What’s more, even if a new currency were to be established, it is unlikely that the new currency would become a reserve currency. This would mean that the new currency would most likely not be traded enough to be listed as a G10 currency.
The G10 currencies are unlikely to be replaced by any other currencies in the foreseeable future due to there simply being too many advantages of using the G10 currencies in the markets.
Final Thoughts
As the global economy continues to change and evolve, so will the G10 currencies. Given the fact that the G10 currencies are the most widely traded currencies in the world and are the most popular for investors and traders, it’s safe to say that the future of the G10 currencies looks bright. With the G10 currencies being accepted by just about every country in the world, they have the biggest potential for growth and expansion.
If you're just starting out in FX hedging, it pays to have the right tools in your trading before diving deep into it. Bound gives you a better FX experience through our auto-hedging platform, which is dedicated to making currency protection better for businesses. We're bringing hedging to all businesses without overcharging them like your typical bank or broker. Sign up for Bound today!
