Which Currency Pairs Move the Most?

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Forex market are often considered to be volatile. However, volatility is relative. Non-linear price movements on the charts can merely make no headway or moves within a narrow range. In this case, traders call this a low volatility in the market. On the other hand, major economic data releases or officials’ speeches can influence sharp chart movements.

Volatility depends on market liquidity, and a rule of thumb says the higher is liquidity, the lower is the volatility. Out of the three types of currency pairs, it is more common that the exotic currency pairs are the most volatile in the Forex market as their liquidity is often lower than the one of the major pairs.

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Often, economic and market events, for example, a change in the interest rate or a price surge in commodity values, can trigger Forex volatility. Some traders have signaled that a pair of currencies – one from an economy that is mainly commodity-dependent, the other is a services-based economy – tends to be more volatile because of the differences in each country’s economic drivers.

Additional drivers of volatility are inflation, government debt, and current account deficits. The political and economic stability of the country whose currency is in play will also influence FX volatility.

One of the most volatile major pairs is the GBP/USD with 98.60 pips on average for 2018 according to investing.com. Since the Brexit news broke out everyone is keeping an eye on the British Pound. The uncertainty around a trade deal, the expectations of adverse impact and potential new trade deals push the currency in different directions.

gbp/usd

GBP/USD

Different majors showing market volatility are USD/JPY and USD/CAD. The first is averaging 63.76 pips since the beginning of 2018 while the USD/CAD is 83.49 pips. A consistent lower interest rate characterizes USD/JPY, and often traders look at the interest rate differential with the US Dollar. The second currency pair highlights the extensive trade these two countries have with each other, and this makes trade one of the driving forces of the currency pair. Canada is one of the largest commodity exporters, and any changes in commodity prices can influence the Canadian Dollar’s performance.

Furthermore, cross pairs (pairs which do not include the US Dollar) tend to add on even more volatility. The most volatile ones are GBP/NZD with 158.43 pips on average in the past year, then GBP/AUD 142.63 pips and GBP/JPY with 124.67 pips.

gbp/nzd

GBP/NZD

Finally, ‘exotic’ crosses (pairs that include a non-major currency), also tend to be more volatile and to have bigger ask/bid spreads. The most notable in 2018 have been USD/SEK with 735.04 pips, USD/BRL with 441.62 pips and USD/DKK with 409.14 pips.

usd/sek

USD/SEK

In the end, those interested in the Forex market need to understand that volatility is inevitable. It’s the nature of all financial instruments to move up and down over the short-term. Nonetheless, there are different approaches to handling high volatility. One solution is to focus on a long-term strategy and ignore the short-term fluctuations. Another one is the limit order – an order that will buy or sell at a predetermined price. Additionally, trade size is a very important factor to consider during high volatility. However, if you decide to trade during a spike in volatility, you must be aware of how market conditions can affect your trade.

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