What are the G10 countries, their influence on the markets, and their relation to forex trading?
Most experts believe the exchange of ideas can change the world. This is the objective on which the G10, or Group of Ten, was formed. Here’s a look at what the G10 is and how it impacts financial markets, specifically forex trading.
What are the G10 countries?
While the group is still called G10, it now has 11 member nations. Switzerland was the last member to join the G10 in 1964.
The G10 members include:
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Belgium
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Canada
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France
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Germany
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Italy
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Japan
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Netherlands
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Sweden
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Switzerland
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United Kingdom
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United States
These countries are powerful not because of their geography, but because of the size of their economies (GDP). They have the power to influence the global economy and the monetary policies of various countries around the world, even those that are not G10 members. Their economic performance impacts everything, from commodity prices to interest rates and currencies.
Economic influence of the G10 countries
The G10 countries have great influence on the economies of other nations. Their economies together account for a huge portion of the global GDP and trade. In fact, they collectively contributed approximately 40% of the global GDP in 2023. Their financial markets are among the largest and most liquid in the world and they serve as benchmarks and drivers for international investment.
Decisions by the central banks of these countries, like the Federal Reserve, European Central Bank (ECB), Bank of Japan (BoJ) and Bank of England (BoE), impact global liquidity, credit conditions and investor sentiment.
When these central banks change their interest rates or follow quantitative easing to meet their inflation targets, they can influence stock market valuations in developed and developing nations alike. This highlights why it’s important to understand the G10’s economic pulse, especially if you are trading forex. Learn more how forex trading works by reading our guide, and strengthen your trading strategies for forex and other markets by opening a demo account.
G10 currencies and forex trading
The G10 countries’ currencies are the most actively traded forex pairs in the world. They have deep liquidity and much lower volatility than emerging market currencies.
Let’s look at the major G10 currencies. The first is, of course, the US dollar, traded frequently across major pairs like USD/JPY and EUR/USD. The US dollar is the world’s main reserve currency and is widely considered a safe haven asset by investors and traders.
Then comes the euro, which is the single currency of the eurozone. It’s mainly traded against USD in the EUR/USD pair, but is also paired with a range of other currencies. The euro is the currency of some of the most powerful European countries, like Germany and France.
Meanwhile, the Japanese yen, commonly traded in the USD/JPY pair, is popular for carry trading. The British pound, often traded via GBP/USD, is the UK’s currency, which is also called the sterling. The Canadian dollar, which can be traded via pairs like USD/CAD, is a commodity-linked currency (influenced by oil prices). There are two other commodity-linked currencies, Australian dollar and New Zealand dollar. Although these are not G10 members, they are often highly influential in the forex market.
Next, we have the Swiss franc and the Swedish krona. Both these belong to nations that are strong and stable.
The impact of monetary policies on markets
The central banks make decisions that directly impact the demand and supply of currencies. Monetary policy decisions by G10 central banks are arguably the most significant drivers of G10 countries’ currencies and, consequently, the global financial markets. Interest rate decisions, in particular, have a direct and immediate impact on currency values. Higher interest rates typically attract foreign capital, as investors seek better returns on their investments, leading to an appreciation of the domestic currency. Conversely, lower interest rates can make a currency less attractive, leading to its depreciation.
Beyond interest rates, central bank forward guidance, quantitative easing (QE) and quantitative tightening (QT) programmes also shape market trends. For instance, the Fed’s tapering of asset purchases can signal an impending rate hike, strengthening the USD. Similarly, the ECB’s bond-buying programme can weaken the EUR by increasing its supply.
Understanding these nuances is crucial to developing effective trading strategies.
G10 vs. G20: key differences
The G20, on the other hand, is a broader forum comprising 19 individual countries and the EU. It was established in 1999 to bring together important industrialised and developing economies to discuss key global economic issues. The G20’s agenda goes beyond financial stability to issues like climate change, development and trade. In essence, the G20 expands on the role of the G10 by including emerging market economies and providing a more comprehensive global economic dialogue.
How traders can use G10 data in forex trading
The G10 forex pairs tend to be the most liquid and frequently traded globally, such as the EUR/USD, USD/JPY and GBP/USD. These currency pairs are highly sensitive to economic data releases and central bank decisions. So, monitoring G10 economic data and central bank announcements via an economic calendar is critical to informed decision-making.
Strategies for trading based on G10 economic policies
Many traders develop strategies around interest rate differentials. If a G10 member’s central bank is expected to raise rates, its currency may strengthen, creating opportunities for long positions. Conversely, a dovish stance could prompt short positions.
News trading, where traders react quickly to unexpected economic or geopolitical developments, is also popular for G10 currency pairs due to their high liquidity. Furthermore, understanding the relative strength of G10 economies can inform long-term trend following strategies. Keep an eye on reports from institutions like the IMF and OECD for insights into the G10’s economic outlook.
Exploring trading accounts and demo accounts
A demo account allows you to trade with virtual money in a simulated market environment, replicating real-time price movements of G10 countries’ currencies and other assets. It is a risk-free way to:
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Familiarise yourself with the trading platform.
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Test trading strategies.
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Analyse the impact of economic data releases and news.
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Understand order types and risk management.
Once you feel confident in your abilities, create a live trading account to begin your trading journey.