Supply and Demand in Weak Currencies

Like most assets, a currency is ruled by supply and demand. When the demand for something goes up, so does the price. If most people convert their currencies into yen, the price of yen goes up, and yen becomes a strong currency. Because more dollars are needed to buy the same amount of yen, the dollar becomes a weak currency.

Currency is, after all, a type of commodity. For example, when a person exchanges dollars for yen, they are selling their dollars and buying yen. Because a currency’s value often fluctuates, a weak currency means more or fewer items may be bought at any given time. When an investor needs $100 for purchasing a gold coin one day and $110 for purchasing the same coin the next day, the dollar is a weakening currency.

Examples of Weak Currencies

Currencies can also be weakened by domestic and international interventions. For example, China’s devaluation of the yuan in 2015 followed a long period of strengthening. Moreover, the imposition of sanctions can have an immediate effect on a country’s currency. As recently as 2018, sanctions weakened the Russian ruble, but the real hit was in 2014 when oil prices collapsed and the annexation of Crimea set other nations on edge when dealing with Russia in business and politics.1

Perhaps the most interesting recent example is the fate of the British Pound as Brexit neared. The British pound (GBP) was a stable currency, but the vote to leave the European Union set the pound on a very volatile path that has seen it weaken in general as the process of leaving plodded along.2

Understanding a Weak Currency

Fundamentally weak currencies often share some common traits. This can include a high rate of inflation, chronic current account and budget deficits, and sluggish economic growth. Nations with weak currencies may also have much higher levels of imports compared to exports, resulting in more supply than demand for such currencies on international foreign exchange markets—if they are freely traded. While a temporary weak phase in a major currency provides a pricing advantage to its exporters, this advantage can be wiped out by other systematic issues.

What Is a Weak Currency?

A weak currency refers to a nation’s money that has seen its value decrease in comparison to other currencies. Weak currencies are often thought to be those of nations with poor economic fundamentals or systems of governance. A weak currency may also be encouraged by a country seeking to boost its exports in global markets.

In practice, currencies weaken and strengthen against each other for a variety of reasons, although economic fundamentals do play a primary role.


  • There can be many contributing factors to a weak currency, but a nation’s economic fundamentals are usually the primary one.
  • Export dependent nations may actively encourage a weak currency in order to boost their exports.
  • Currency weakness (or strength) can be self-correcting in some cases.

Downsides of a Hard Currency

Hard currencies are more valuable than other currencies. For instance, as of Nov. 6, 2020, the FX market traded at a rate of 6.61 yuan per U.S. dollar and 73.97 rupee per dollar.56 These exchange rates are detrimental for Chinese and Indian importers but positive for current account balances. A weak exchange rate helps a country’s exporters because it makes exports more competitive (or cheaper) in international commodity and other markets. In recent years, China has faced accusations of manipulating its exchange rate to deflate prices and seize a greater share of international markets.

Example of Hard Currencies in Action

Within the hard currency group, the Canadian and Australian dollars are sensitive to commodity prices but they weather these dips better than other countries much more dependent on commodities. For example, the collapse of energy prices in 2014 hurt both the Australian and Canadian markets, but it was far more devastating for the Russian ruble. That said, a depreciation in a nation’s currency is usually result of either an increase in the money supply or a loss of confidence in its future ability as a store of constant value, because of either economic, financial or governmental concerns. A striking example of an unstable or a soft currency is the Argentinian peso, which in 2015, lost 34.6% of its value against the dollar, making it highly unattractive to foreign investors.3

The value of a currency is mostly based off of economic fundamentals such as gross domestic product (GDP) and employment. The international strength of the U.S. dollar is reflective of America’s GDP which, as of 2019 current prices, stands first in the world at $21.37 trillion. China and India have the second and fifth, respectively, ranked GDPs in the world at $14.34 trillion and $2.88 trillion, but neither the Chinese yuan nor the Indian rupee is considered a hard currency.4 This underscores how central bank policies and stability in a country’s money supply also factor into exchange rates. There is also a clear preference for mature democracies with a transparent legal system.

Understanding Hard Currency

A hard currency is expected to remain relatively stable through a short period of time, and to be highly liquid in the forex or foreign exchange (FX) market. The most tradable currencies in the world are the U.S. dollar (USD), European euro (EUR), Japanese yen (JPY), British pound (GBP), Swiss franc (CHF), Canadian dollar (CAD) and the Australian dollar (AUD).1 All of these currencies have the confidence of international investors and businesses because they are not generally prone to dramatic depreciation or appreciation.

The U.S. dollar stands out in particular as it enjoys status as the world’s foreign reserve currency.2 For this reason, many international transactions are done in U.S. dollars. Moreover, if a country’s currency begins to soften, citizens will begin holding U.S. dollars and other safe haven currencies to protect their wealth.


  • Hard currencies act as a liquid store of wealth and a safe haven when domestic currencies struggle.
  • Hard currencies come from countries with stable economies and political systems.
  • The opposite of hard currency is a soft currency.

Types of Crosses

Currency Crosses

The U.S. dollar (USD) is the most actively traded currency in the multi-trillion-dollar daily foreign exchange market. In the past, investors or hedgers who wanted to trade a pair such as the euro vs. the yen, known as EUR/JPY, needed to do it through the dollar.

This meant that buying EUR and selling JPY required the following two steps:

  1. Buy EUR and sell USD and
  2. Buy the same amount of USD and sell JPY. Disadvantages of this approach include paying the bid/offer spread twice (once in each currency pair) and needing to deal for a USD amount rather than a EUR or JPY amount.

However, the dollar pairs are more actively traded than the cross, so in times of volatility or reduced liquidity, traders may still execute via the components.

The most actively traded currency crosses are the euro vs. the yen, British pound (GBP), and Swiss franc (CHF). Cross trades can be done for any spot, forward, or option transactions.

Golden Crosses and Death Crosses

Technical analysis involves the use of statistical analysis to make trading decisions. Technical analysts use a ton of data, often in the form of charts, to analyze stocks and markets. Technical traders learn to recognize these common patterns and what they might portend for the future performance of a stock or market.

golden cross and a death cross are exact opposites. A golden cross indicates a long-term bull market going forward, while a death cross signals a long-term bear market. Both refer to the solid confirmation of a long-term trend by the occurrence of a short-term moving average crossing over a major long-term moving average.

Either cross may occur as a signal of a trend change, but they more frequently occur as a strong confirmation of a change in trend that has already taken place.

death cross
death cross.

What Is the Meaning of Crossing Shares?

Crossing shares is when one broker pairs off a buy and sell order from two separate customers of the same stock at the same price. Before crossing the trade, the broker must offer the stock for a higher price than the bid price in the market. If the higher price is not accepted, then the broker can execute the orders.

Is Cross Trading Illegal?

A cross trade occurs when a buy and sell order for the same stock is offset from one another and not recorded on the exchange. This type of trade is not allowed on most of the large exchanges. A concern of cross-trading is that it may be used to “paint the tape,” whereby market players manipulate the price of a stock on purpose by buying and selling it amongst themselves.

What Is a Closing Cross?

A closing cross is a type of trade on the Nasdaq that determines the closing price of securities on the exchange. Nasdaq developed the closing cross to ensure that every security has a uniform closing price at the end of the day. Nasdaq stipulates that after 3:55 p.m., close orders may not be entered or altered, except for actual errors. The closing cross occurs at 4:00 p.m

Understanding a Cross Finance

If a stockbroker receives separate orders to buy and sell at the same price at the same time, they must offer the stock in the market at a higher price than the bid. If no higher bid is available, they can execute the two deals at the same time and at the same price.

Opening and Closing Crosses

The Nasdaq gathers and posts data on all buy and sell interest in the two minutes prior to its opening; this information is referred to as the opening cross. Traders can post orders to buy at the opening price or to buy if there is an order imbalance. This dissemination of pricing interest helps to limit disruptions in liquidity.

The closing cross on Nasdaq matches bids and offers in a given stock to create a final price of the day. Traders can place orders that can be either “market at close,” which means buy or sell at the official closing price or “limit at close.”

In the latter case, if the price at the close is better than the specified limit, the deal will be executed at the market price. Nasdaq collects data for the closing cross between 3:50 p.m. and the closing time of 4:00 p.m. Cross orders are executed between 4:00 p.m. exactly and five seconds after 4:00 p.m.