TradingPairs101

EUR/USD is the most traded currency pair on the market, with EUR/USD transactions making up 24.0% of daily forex trades in 2019. The popularity of the EUR/USD pair comes from the fact that it is representative of the world’s two biggest economies: the European single market and the US.

The high daily volume of EUR/USD transactions ensures that the pair has a lot of liquidity which generally results in tight spreads. Liquidity and tight spreads are enticing for traders because they mean that large trades can be made with little impact on the market.

The exchange rate of EUR/USD is determined by a number of factors, not least of which are the interest rates set by the European Central Bank (ECB) and the US Federal Reserve (Fed). This is because the currency with the higher interest rates will generally be in higher demand because higher interest rates give a better return on their initial investment. If for instance, the ECB had set higher interest rates than the Fed, it is likely that the euro would appreciate relative to the dollar.