Major Currencies

The U.S. Dollar. The United States dollar is the world's main currency – a universal measure to
evaluate any other currency traded on Forex. All currencies are generally quoted in U.S. dollar
terms. Under conditions of international economic and political unrest, the U.S. dollar is the main
safe-haven currency, which was proven particularly well during the Southeast Asian crisis of
1997-1998. As it was indicated, the U.S. dollar became the leading currency toward the end of the
Second World War along the Breton Woods Accord, as the other currencies were virtually
pegged against it. The introduction of the euro in 1999 reduced the dollar's importance only
marginally. The other major currencies traded against the U.S. dollar are the euro, Japanese yen,
British pound, and Swiss franc.
The Euro. The euro was designed to become the premier currency in trading by simply being
quoted in American terms. Like the U.S. dollar, the euro has a strong international presence
stemming from members of the European Monetary Union. The currency remains plagued by
unequal growth, high unemployment, and government resistance to structural changes. The pair
was also weighed in 1999 and 2000 by outflows from foreign investors, particularly Japanese,
who were forced to liquidate their losing investments in euro-denominated assets. Moreover,
European money managers rebalanced their portfolios and reduced their euro exposure as their
needs for hedging currency risk in Europe declined.
The Japanese Yen. The Japanese yen is the third most traded currency in the world; it has a much
smaller international presence than the U.S. dollar or the euro. The yen is very liquid around the
world, practically around the clock. The natural demand to trade the yen is concentrated mostly
among the Japanese keiretsu, the economic and financial conglomerates. The yen is much more
sensitive to the fortunes of the Nikkei index, the Japanese stock market, and the real estate
market.
The British Pound. Until the end of World War II, the pound was the currency of reference. The
currency is heavily traded against the euro and the U.S. dollar, but has a spotty presence against
other currencies. Prior to the introduction of the euro, both the pound benefited from any doubts
about the currency convergence. After the introduction of the euro, Bank of England is attempting
to bring the high U.K. rates closer to the lower rates in the euro zone. The pound could join the
euro in the early 2000s, provided that the U.K. referendum is positive.
The Swiss Franc. The Swiss franc is the only currency of a major European country that belongs
neither to the European Monetary Union nor to the G-7 countries. Although the Swiss economy is
relatively small, the Swiss franc is one of the four major currencies, closely resembling the
strength and quality of the Swiss economy and finance. Switzerland has a very close economic
relationship with Germany, and thus to the euro zone. Therefore, in terms of political uncertainty
in the East, the Swiss franc is favored generally over the euro. Typically, it is believed that the
Swiss franc is a stable currency. Actually, from a foreign exchange point of view, the Swiss franc
closely resembles the patterns of the euro, but lacks its liquidity. As the demand for it exceeds
supply, the Swiss franc can be more volatile than the euro.
 

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