Risky Forex Currencies: Which assets require caution?

In the Forex market, most trades are centred around a small set of currency pairs, which can be divided into two main groups: stable major currencies and riskier minor ones. Forex traders closely follow the price movements of the major currencies, but in order to successfully navigate trading, it is important to understand how both categories work and what features the riskiest currencies on the market have.

Major currencies of the currency market

The Forex currency market includes many currencies, but the focus is on a few key players that form the majority of trading operations. Major currencies such as the US dollar, the euro and the Japanese yen have high liquidity and stability, making them attractive to traders around the world. These currencies not only reflect the economic strength of their countries, but also serve as indicators of global financial trends. Let's get acquainted with the main currencies that influence the market dynamics and form the basis of international trade.

US dollar (USD)

The US dollar (USD) is the undisputed leader on the Forex market, covering about 86% of all transactions. It serves not only as a benchmark for valuing other currencies and commodities, but also as a key element of the world's currency reserves, accounting for about 64% of the total volume. The dollar exchange rate is influenced by a variety of factors, including dollar-traded oil and metals. Changes in supply and demand in these markets directly affect the value of the dollar.

In addition, the dollar is often viewed as a safe haven for investors during periods of economic instability, which strengthens its position in global markets. The interest rate policy of the U.S. Federal Reserve has a significant impact on the dollar, along with the trade balance and the level of government debt. Usually, an increase in the trade deficit and government debt reduces the attractiveness of the dollar, but paradoxically, it is at times like these that investors often turn to the dollar as a safe-haven asset, causing it to strengthen.

Euro (EUR)

The Euro (EUR) is a relatively young currency on the Forex market, replacing the German mark, which previously accounted for 25% of all transactions on the market. Today, the Euro is used by 19 countries in the European Union and is the second most traded currency, covering about 37% of all currency transactions. The fundamental value of the euro is largely dependent on the economic strength of member states, especially countries such as Germany and France.

The key factors affecting the performance of the euro are the inflation rate, interest rates set by the European Central Bank, and indicators related to exports and unemployment. Germany, as one of the leading exporters of manufactured goods and technology, has a significant impact on the euro. However, Europe is also heavily dependent on energy imports such as Russian gas and oil from the Middle East, which can negatively impact the currency when demand for these resources increases. Additional pressure on the euro is exerted by economic differences between eurozone countries, which was particularly evident during the 2011 debt crisis.

Japanese Yen (JPY)

The Japanese Yen (JPY) is the strongest and most traded currency in the Asian market. Globally, the yen is the third most traded currency, behind the US dollar and the euro, and accounts for around 20% of all currency transactions. The main demand for the yen comes from Japanese companies that bring their profits back to the country, linking the value of the yen to the financial performance of these companies and the health of the local property market.

Japan's economy is export-oriented, which makes the yen a popular safe haven asset for traders during periods of instability in global markets. At the same time, the yen is also attractive to downside traders due to Japan's low interest rates. These rates allow the yen to be borrowed at minimal interest and reinvested in other currencies with higher yields, making the yen a key player in risk-taking strategies.

Risky currencies in Forex

In addition to the major currencies, there are more volatile currencies that carry higher risks for traders. These currencies, often influenced by global economic and political factors, can fluctuate significantly in price, creating both opportunities for high profits and threats of significant losses. Understanding the characteristics of risky currencies such as the Swedish krona, Danish krona and Czech krona helps traders better navigate the complex and dynamic environment of the foreign exchange market.

Swedish Krona (SEK)

The Swedish Krona (SEK), the official currency of Sweden, is considered one of the riskier currencies in Forex due to a number of factors. As an export-orientated economy, Sweden makes its currency vulnerable to global economic fluctuations. The policies of the Swedish Central Bank (Riksbank), including negative interest rates, also have a significant impact on the Krona exchange rate by affecting capital flows.

The krona is highly sensitive to changes in commodity prices, especially oil prices, which adds to its volatility. Therefore, traders should keep an eye on Swedish economic indicators, Riksbank decisions and global geopolitical events in order to anticipate fluctuations in the Swedish Krona exchange rate and manage their Forex investments.

Danish Krona (DKK)

The Danish Krona (DKK), the official currency of Denmark as well as the Faroe Islands and Greenland, is considered one of the risky currencies despite its historical stability. Because Denmark maintains a fixed exchange rate policy against the euro, the Danish National Bank actively intervenes in the market to maintain this parity. Such interventions can create tension in currency markets, especially during periods of instability.

The krona exchange rate is significantly affected by unpredictable global events, such as financial crises, as Denmark strives to keep its currency closely pegged to the euro. It is important for traders to monitor economic statements and actions of the Danish National Bank in order to react in a timely manner to possible changes in the krona exchange rate in the Forex market.

Czech Crown (CZK)

The Czech Crown (CZK) is the national currency of the Czech Republic, which, as a member of the European Union, is not part of the Eurozone. This means that economic events in Europe have a significant impact on the krona exchange rate, creating additional risks for traders. The Czech National Bank often intervenes in currency operations to curb exchange rate fluctuations, especially during periods of increased volatility.

The dynamics of the Czech crown are subject to changes due to monetary policy decisions and important economic announcements within the country. Therefore, it is important for CZK traders to monitor key economic indicators of the Czech Republic as well as developments in the European Union to better understand possible risks and assess the outlook in the foreign exchange market.

Conclusion

The Forex market offers traders a wide range of currencies, from stable major currencies to riskier minor currencies. Understanding the peculiarities of each of them allows you to make informed trading decisions and minimise potential losses. Traders who are willing to take the time to learn the specifics of these currencies will be able to make the most of their volatility while effectively managing risk and protecting their investments in this dynamic market.