Ukraine Peace Deal and Forex: The Forex Impact of a Potential Ukraine Peace Deal
Wondering about the Ukraine peace deal and forex? When Russia invaded Ukraine back in 2022, it had a major impact on geopolitical impact on forex and the markets. Now that international headlines are focusing on a concerted push to reach a deal on at least a ceasefire, it’s understandable to expect it would also have market implications. Foreign exchange is especially related to foreign relations, and geopolitical shifts generally imply shifts in currencies.
Obviously reaching a Potential Ukraine peace deal, even if it goes so far as to find an end to the war, wouldn’t simply reverse the impact seen from the start of the war. Pretty much every global leader has insisted that it’s not possible to return to the pre-war status quo. That opens a complex panorama for the markets, which allows for a wide range of uncertainties and trading opportunities.
Figuring Out Where Things Are Going
Of course how the market will react will depend a lot on what is agreed to, and how credible and lasting investors and analysts think the deal will be. With most (if not all) the serious negotiation happening behind closed doors, it’s not possible to really know what will ultimately be agreed on. But, there are some general themes that can be analyzed, which might help get a better understanding of how currency markets might react if a deal of some sort is reached.
Some of the potential effects can already be observed, as investors and traders try to anticipate moves. For example, European equities have been rising of late on renewed optimism. Part of that can evidently be attributed to expectations of easier interest rates from the ECB, which have the general tendency to support prices in stocks. But general optimism for a potential Ukraine peace deal is playing a role, implying that investors are selling bonds, which has the general effect of weakening the currency.
The Pending Issue
Resolving the conflict would likely be generally understood as resolving a risk factor, and aid in easing geopolitical uncertainty. In that sense, a Ukraine deal might function similarly to what occurred after the temporary ceasefire agreement on Gaza. The immediate move away from safe havens (hurting gold, helping commodity currencies) also faded in the weeks later as investors turned their attention to other risk factors, such as tariffs.
In fact, reaching a deal between Russia and Ukraine might make the tariff issue more acute, depending on how the different parties feel treated. It could mean the US turns its attention toward tariffs, having resolved the issue. Or it could mean that the Trump Administration uses tariffs in an attempt to pressure reluctant European leaders into a deal. It seems markets consider tariffs a more pressing issue than the war in Ukraine.
Beyond the Main Themes
A deal that generates confidence in the markets would support a resurgence in risk appetite, likely to the detriment of major currencies such as the dollar and Euro. But, with Europe being unwilling to return to buying Russian oil, or even potentially lifting sanctions on Russia, the effect on commodities and the currencies that rely on them could be limited.
In the end, markets might be more prone to focus more on any new risk that develops as a result of the deal than on a relief rally. Such as whether the deal increases tensions within NATO, how involved China is in the outcome, and if it means that the Trump Administration turns towards Asia.
