Currency Characteristics - U.S. Dollar, Euro, Pound and Yen

Each of the major currencies has its own personality. Getting to know what goes into each of these personalities will better prepare you to take advantage of trends in those pairs.

Some currencies are heavily influenced by changes interest rates, other currencies not so much. Some currencies are extremely sensitive to changes in commodity prices or even the winds of political change. Get to know each currency by studying its characteristics below.

USD - U.S. dollar
The USD is the world's reserve currency. Central banks hold many, many dollars for financial dealings and through the acquisition of assets. This makes the USD very sensitive to changes in interest rates.

The U.S. is a debtor nation, meaning that it must borrow a lot of capital to operate. This, too, makes the USD very sensitive to interest rates.

The U.S. consumes and consequently imports much more than it exports. The U.S. consistently runs a large trade deficit. The single most important import is energy, specifically crude oil. Rising oil prices typically result in a weaker USD.

The U.S. is a politically susceptible country. This exposes the USD to political risks such as changes in government and taxes. Additionally, the U.S. regularly flexes its military might around the globe, which can cause the USD to weaken when conflict erupts.

EUR - euro
The EUR is extremely sensitive to changes in interest rates. That's because the EUR is emerging as a leading reserve currency, replacing the USD in most instances.

The EUR is equally sensitive to economic growth. The region typically lags the rest of the world in GDP growth, which can sometimes weaken the EUR. The EUR is supported by a vast collection of countries that oftentimes have differing monetary and political views. These differences often manifest in weakness in the EUR.

The European Union is frequently growing as more and more countries join. This has its advantages and disadvantages.

GBP - British pound
The GBP is one of the most highly valued currencies in the world because of the U.K.'s stable and reliable monetary policy. The GBP typically carries a relatively high interest rate. The U.K. economy relies heavily on consumer spending, which means the labor situation, retail sales, and housing data are all important statistics to consider when trading the GBP.

JPY - Japanese yen
The JPY is sensitive to changes in exchange rates because the rate is a huge exporter of manufactured goods. The Bank of Japan is notorious for managing the JPY because the country relies so heavily on exports to drive growth.

The country is quite small and short on natural resources. Naturally, Japan imports a great deal of its commodities including energy, metals, and other commodities.

The JPY is known for yielding a very low interest rate due to the sluggish domestic growth.

Currency Characteristics Summary
There are innumerable instances in which understanding a currency's characteristics can help you to spot opportunities in the Forex market. The more you know about the economies of each of the countries or regions, the better prepared you will be to spot opportunities in the Forex market. Take time to study the economies of these countries or regions. It will pay off down the road.