With an average daily volume of $6 trillion, the foreign exchange market is the largest and most liquid market in the world. And while the forex market was previously dominated by banks and corporations, more and more individual investors are moving into alternative investments like foreign currency to counter the increasingly volatile stock market.

 

Though investing in foreign currencies is a great way to diversify your portfolio, the risks and outcomes are directly dependent on political, economic, and health developments across the globe.

 

Here are some of the best currencies to consider in 2021.

 

United States Dollar
1 USD = 0.82 EUR

The US Dollar, currency to the world’s largest economy, was involved in 90% of all forex trades as of 2019.  

Politics and major events play a huge role on the Dollar’s value and stability, with any fluctuations in the US likely affecting the world economy. That is why it is always important to keep your eyes peeled on a country’s political developments when investing in its currency.

And although many argue that its lack of stability makes it unsafe, the US Dollar remains the world’s reserve currency and its popularity is undeniable.

 

The Euro
1 EUR = 1.21 USD

The Euro, the world’s second reserve currency, is the official currency of 19 European countries.  It is also known to be the second most traded currency on the foreign exchange market only preceded by the US dollar. In fact, the EUR/USD is the most traded forex pair in the world, accounting for almost a quarter of daily forex trades.

However, 2021 may be a rocky year for Europe’s economies, namely France, Italy, and Spain which have all suffered majorly due to the pandemic.

 

The Swiss Franc
1 CHF = 1.12 USD

One of the safest currencies to invest in besides the US Dollar and Euro is the Swiss Franc.

Switzerland is one of the wealthiest countries in the world and has a solid track record in banking and finance. 

With some of the world’s strictest monetary policies and lowest debt levels, the CHF has drawn many an investor to choose is as a “safe bet” investment. Also known for being the sixth most traded currency in the world, the Swiss Franc is expected to retain its value in the foreseeable future!

However, the Swiss Franc does not behave with complete independence from the Euro. Because Switzerland is almost completely surrounded by the Eurozone, the majority of its exports are with the EU. Therefore, fluctuations in Euro can have an impact of the CHF.

 

Japanese Yen
1 JPY = 0.0095 USD  

Besides Japan’s inflation rates being low for extended periods of time, the Yen isn’t pegged to neither the Dollar nor the Euro, and retains its purchasing power even in times of crisis.

Japan also establishes excellent trading relationships, which contribute to the liquidity of the Japanese Yen.

 

New  Zealand Dollar
1 NZD = 0.72 USD

The NZD has been steadily gaining in strength and stability over the years, due to the country’s political stability, high interest rates and GDP growth, even during the pandemic.

Still, the US dollar has a significant influence on the NZD. Generally, when the USD gets stronger, the New Zealand dollar is relatively weaker and vice versa.

 

Pound Sterling
1 GBP = 1.36 USD

The GBP is often thought to be the strongest currency in the world. It’s also the 4th most traded currency globally, accounting for around 12.8% of daily trades on the foreign exchange market. But with the coronavirus pandemic, continued frustrations over Brexit, trade deals with the EU, and the UK suffering the biggest economic recession amongst major economies, most bank analysts predict the Pound Sterling will remain weak throughout 2021. And with the true impact of Britain’s departure from the EU still uncertain, the GBP is prone to instability this year.