What happens to a currency’s value when liquidity is low?

When liquidity is low, it means that there are fewer participants in the market willing to buy and sell the currency, which can lead to decreased demand. With lower demand and less trading activity, an imbalance occurs, causing the currency's value to decrease. Essentially, low liquidity makes it harder to execute trades at stable prices, often resulting in a downward pressure on the value because even small transactions can significantly impact the market.

In stable or high liquidity conditions, there are enough buyers and sellers to absorb trade orders without significantly affecting prices. Conversely, with low liquidity, even minor movements or news could lead to greater price drops, as fewer transactions can move the market.