The Least Volatile Currency Pairs for Forex
Forex currency pairs offer a range of trading opportunities for beginners through to experience traders. The least volatile currency pairs provide a low-risk way to trade some of the most stable instruments in the market. Read on to find out what creates volatility, what are the most and least volatile currency pairs and how to trade them.
- Volatility in forex trading
- Factors that affect volatility
- What are the least volatile currency pairs?
- USD/CHF
- GBP/USD
- EUR/USD
- USD/JPY
- Risks and benefits of trading the least volatile currency pairs
- How to trade the least volatile currency pairs
Volatility in forex trading
Volatility is one of the main challenges of forex trading and refers to how much a security's value swings over a period of time. It's common to see sudden, large and unpredictable increases or decreases in highly volatile markets, while more stable assets will remain less volatile and, therefore, not as susceptible to such dramatic price changes.
Although trading in highly volatile markets can lead to increased profits, it can also result in greater losses due to the large level of risk. Trading forex currency pairs in a less volatile market offers increased stability and an easier way to predict future values.
Factors that affect volatility
It's well known that forex is the most liquid financial market available to trade. Generally, the more liquid a market is, the less volatility there is. But because there are many factors that affect volatility in the forex market, dramatic price movements can be a common occurrence, especially in certain currency pairs.
Some typical factors include:
- The economic situation and data of the relevant countries including inflation and interest rates
- Political and geopolitical events and situations including conflict and elections
- Imports, exports and any trade issues
- Specific country-related industry news (such as oil demand and supply)
- Market sentiment
- Low liquidity across some currency pairs
The least volatile currency pairs are those less likely to be affected by these aspects. While there are a number of currency pairs that have historically been seen as fairly stable, though, even these will have been affected by some of the above factors at one time or another. The main difference is by how much any given currency pair is impacted.
Discover more about what affects forex prices as well as currency pair categories.
What are the least volatile currency pairs?
All currencies can be affected by volatility at various times so it's possible that the least volatile currency pairs could change, depending on the factors mentioned above. Historically, however, there are a number of currency pairs that generally remain stable. These tend to be the major currency pairs from well-developed, often dominating, economies.
USD/CHF
This consists of the US dollar and the Swiss franc and is considered the least volatile currency pair for multiple reasons. The Swiss franc has always been renowned as a 'safe haven' currency, meaning that it typically does well when there is uncertainty across other economies. Historically, the Swiss franc sees especially high global demand during volatile conditions related to the Euro. Additionally, the Swiss National Bank is backed by a variety of reserves including currency, gold and other financial assets, contributing to its stability.
The US dollar is one of the world's most popular and used currencies, featuring in almost all global trade transactions. It's also the world's reserve currency and is generally affected less by economic factors than many others.
These aspects make this pairing one of the most popular and low-risk investments, particularly during otherwise unpredictable economic times.
GBP/USD
Both the Great British pound and the US dollar are highly liquid and therefore continue to remain relatively stable. With both featuring in the International Monetary Fund's Special Drawing Rights, an additional international reserve asset, it's no surprise that this pairing is popular among traders and investors.
The value of these currencies is also closely related to the price of the main oil benchmarks (Brent crude and WTI), one of the major commodities with direct ties to both economies. This currency pairing is also correlated with the EUR/USD, with one usually closely tracking the other. However, politics surrounding Brexit have played a part in the volatility of this forex pair during recent years.
EUR/USD
Historically, another of the least volatile currency pairs is the EUR/USD, likely due to its liquidity and respective large economies. Despite being one of the more recently established currencies, the Euro is the world's second most popular reserve currency and is widely used in the global trade industry. However, recent economic and political events resulted in increased fluctuations, with 2022 seeing the Euro's lowest value since 2008. This was caused by a variety of factors, including monetary policies, the Russia/Ukraine conflict and its impact on oil supply and, in contrast, the strength of the US dollar in times of economic uncertainty.
Although the exchange rate has stabilised in recent months, it remains to be seen whether the EUR/USD will continue to be one of the least volatile currency pairs in 2023.
USD/JPY
The US dollar pitted against the Japanese yen generally sees predictable price movements. While daily values tend to fluctuate, the overall price of the yen is typically stable, in large due to the actions by the Bank of Japan and the lucrative export market. This makes it one of the least volatile currency pairs. It also offers unusual trading opportunities as it can be traded almost 24/7 due to the differing times of the US and Asian markets.
The pairing correlates with the price of oil, largely due to Japan being a major importer of the commodity. It also signifies trade between two of the world's major markets.
Other currencies that can be classed as some of the least volatile currency pairs include AUD/USD, NZD/USD and USD/CAD. These also show very small price fluctuations in relation to other currency pairs. Commodity prices and tourism are two of the major factors that can affect the value of the Australian dollar and New Zealand dollar.
Risks and benefits of trading the least volatile currency pairs
The main advantage of trading the least volatile currency pairs is the lower risk, in comparison to trading those that are more volatile. Stable currencies can offer a good way for traders to make profit in a highly liquid market however please be aware of the risks involved in trading. It's fairly easy to enter and exit positions at the right time if you have a good level of knowledge. However, the opportunities for increased profit are relatively small due to the lack of significant price movements.
If you're considering whether to trade the most or least volatile currency pairs, it's important to weigh up your risk/reward benefit and make sure that you implement risk-management strategies to help to limit any losses. If you’re new to forex trading, it's recommended to begin by trading some of the major and less volatile currency pairs before moving onto to riskier positions.
How to trade the least volatile currency pairs
If you're ready to being trading forex with the least volatile currency pairs, get started with Tradu:
- Sign up: Register for a live Tradu account online.
- Choose your currency pair: Select one of the least volatile currency pairs as suggested above.
- Apply your analysis: Combine fundamental and technical analysis to create a successful forex trading strategy.
- Begin trading: Open, monitor and close your positions with our advanced platform.