The forex market is the largest and most liquid financial market in the world, with daily trading volumes exceeding $6 trillion. Among the myriad of currencies traded globally, the US Dollar (USD) and the Euro (EUR) stand out as the most dominant. Together, these two currencies account for over 70% of all forex transactions, a significant share that has remained consistent over the years. Understanding why the US Dollar and Euro dominate global forex trading requires a deep dive into their roles in international trade, finance, and geopolitics. In this article, we’ll explore the key factors that contribute to the dominance of the USD and EUR in global forex trading.
1. The US Dollar: The World’s Primary Reserve Currency
1.1 Global Reserve Currency Status
The US Dollar has held the position of the world’s primary reserve currency for decades. This means that central banks and financial institutions around the world hold large amounts of USD in their foreign exchange reserves. As of 2025, the US Dollar still accounts for approximately 60% of global reserves, according to the International Monetary Fund (IMF).
This reserve status is a direct result of the Bretton Woods Agreement, which was established in 1944 and pegged the US Dollar to gold. Although the gold standard was abandoned in 1971, the US Dollar has remained the world’s dominant currency due to its stability, trust, and the size of the US economy.
1.2 Global Trade and Investment
The US Dollar is the preferred currency for conducting international trade, especially for commodities. The most significant example is oil, which is traded globally in USD. This practice, known as the petrodollar system, reinforces the dominance of the US Dollar in global markets. Countries that import or export oil need to hold US Dollars to settle transactions, which increases global demand for the currency.
Moreover, the size and stability of the US economy, combined with the Federal Reserve’s policies, make the USD an attractive currency for investment. Investors worldwide often flock to the US Dollar during periods of geopolitical uncertainty, making it a safe-haven currency. The demand for US assets, such as government bonds and equities, further entrenches the US Dollar’s dominance in global trading.
1.3 Widespread Use in Financial Markets
The US Dollar is used extensively in international financial markets. It serves as the currency of choice for cross-border lending and borrowing, as well as a medium of exchange for foreign exchange transactions. In addition, many emerging market economies and countries in Asia and Latin America issue debt in US Dollars, known as USD-denominated debt. This increases the demand for the US Dollar as it is required to service these debts, creating a continuous flow of demand in the forex market.
2. The Euro: The Primary Competitor to the US Dollar
2.1 European Union Economic Power
The Euro is the official currency of the European Union (EU), and its importance is tied to the size of the EU economy. The EU is the world’s second-largest economy, behind the United States, and the Eurozone has a population of over 340 million people. The size and economic power of the Eurozone make the Euro a natural contender to the US Dollar’s dominance in global trade and finance.
Launched in 1999, the Euro quickly became the second most traded currency in the world. The European Central Bank (ECB), which governs the Euro, has maintained policies to ensure the Euro’s stability, making it an attractive currency for investors and traders alike. Today, the Euro accounts for approximately 20% of global forex transactions and 25% of global reserves, cementing its position as the world’s second most important currency.
2.2 Currency of Trade and Investment in the EU
The Euro is the dominant currency used for trade within the European Union and between the EU and other parts of the world. As a member of the EU, the Euro benefits from a unified economic area with common standards, regulatory frameworks, and a large single market. This facilitates the use of the Euro in international transactions, as businesses and governments within the EU can conduct trade without the need for currency conversions.
Additionally, the Eurozone countries are major players in global trade, particularly in industries like machinery, chemicals, automobiles, and luxury goods. This strong export market increases the demand for the Euro as trading partners need to hold the currency to settle invoices and investments.
2.3 Euro as a Reserve Currency
As the second-largest reserve currency, the Euro is widely held by central banks across the world. This gives the Euro significant global influence, especially within the context of international trade and finance. Many countries hold Euro reserves alongside US Dollars to diversify their holdings and reduce dependency on the US Dollar. The Euro’s status as a reserve currency is also bolstered by the stability of the EU economy and the monetary policies of the ECB.
2.4 Cross-Border Transactions and Hedging
The Euro is frequently used for cross-border transactions within the European Union and its trading partners. Companies that operate within the EU or trade with Eurozone countries often prefer to use the Euro for hedging purposes. This helps businesses mitigate currency risk when dealing with imports, exports, and international investments. As a result, the Euro has become a preferred currency for international business dealings in Europe and surrounding regions.
3. Geopolitical and Economic Stability
3.1 The US Dollar as a Safe Haven
The US Dollar’s dominant role in the forex market is partly due to its reputation as a safe-haven currency. During times of geopolitical uncertainty, economic crises, or financial turmoil, global investors flock to the US Dollar as a stable store of value. This increases the demand for the USD and reinforces its dominance in forex trading.
The Federal Reserve, the US central bank, is also widely regarded as one of the most influential central banks in the world. Its policies on interest rates, monetary tightening or easing, and quantitative easing directly impact the value of the US Dollar. This level of control and stability makes the USD a highly trusted currency in global markets.
3.2 The Eurozone’s Economic Stability
The Euro’s dominance in forex trading is also supported by the relative economic stability of the European Union, despite challenges such as the Eurozone debt crisis. The European Central Bank’s role in managing the Eurozone’s monetary policy and maintaining the currency’s stability has enhanced the Euro’s global reputation. As the EU continues to strengthen its trade relationships with other regions, the Euro’s role in international finance will likely continue to grow.
However, the Euro’s position as the second-most traded currency is also influenced by the fact that it is subject to the policies of multiple countries within the Eurozone. While this brings some degree of economic diversity, it can also introduce risks, as seen during periods of financial crisis when certain member states face challenges.
4. The Role of the US Dollar and Euro in Forex Trading
4.1 Major Currency Pairs
The US Dollar and Euro dominate forex trading through their involvement in the most traded currency pairs, such as:
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EUR/USD: The Euro/US Dollar pair is the most traded currency pair globally, accounting for around 30% of all forex transactions. It serves as a benchmark for global forex market performance and is highly liquid, making it attractive to traders.
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USD/JPY: The US Dollar/Japanese Yen pair is also among the top traded pairs, with the US Dollar being a primary counterparty to the Yen.
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GBP/USD: The British Pound/US Dollar pair is another key pair that represents a major part of global forex trading, driven by the economic importance of the UK and the US.
These major currency pairs contribute to the vast liquidity and accessibility of forex markets, making the US Dollar and Euro integral to the daily trading volume.
Conclusion
The dominance of the US Dollar and Euro in global forex trading is a result of a combination of factors, including their roles as reserve currencies, the economic power of the US and the EU, and their widespread use in global trade and investment. The US Dollar benefits from its status as the world’s primary reserve currency, supported by the size and stability of the US economy, while the Euro’s strength stems from the collective economic power of the Eurozone.
The high liquidity, stability, and broad use of the USD and EUR in global financial markets ensure their continued dominance in the forex market. As long as the US and EU maintain their economic influence and geopolitical stability, the US Dollar and Euro are likely to remain the cornerstone of global forex trading.
