The ongoing Russia-Ukraine war has had profound effects on the world’s markets, financial systems, and general economic climate. Not only have the hostilities sent agricultural and energy commodities into a highly volatile state, but they have also created unique situations in the foreign exchange currency segment. Notably, the US dollar and several other currencies have felt the impact of Eastern Europe’s war, which is now almost one year old. How is the Ukraine-Russia conflict affecting the West’s capital markets and global forex sector? The best way to get a handle on what’s happening in those two areas is to review the most recent developments in the value of the dollar, the ruble’s fluctuations, the chances for a worldwide recession, agricultural commodities volatility, energy, the euro, and more.
Forex Fallout
The war continues to cause a ripple effect throughout multiple markets, sectors, and national economies. In foreign exchange, the largest trading segment on earth, some of the most popular currency pairs, both minor and major ones, were sent into a high-volatility cycle that, for the most part, is still in place. The sharp rise in commodities prices in assets like soybeans and grain directly boosted the rate of Western inflation. Foreign exchange traders face the challenge of having to take the war’s effects into account when pricing the major and minor currency pairs. However, many use precise tools like this forex calculator to determine the relative strength of individual components of any given pair, like USD/JPY, EUR/GBP, and others.
From the EU outward, the vortex of Ukraine’s export woes dealt blows to US, UK, Asian, and Indian markets, primarily due to costly commodities. The cause-and-effect circuit of the events led central banks in numerous nations to raise interest rates and take up other strategies to fend off rising prices and a surging inflation rate. As the US Federal Reserve Bank confirmed, there’s no doubt that more expensive energy, wheat, oil, natural gas, and soybeans have played a significant role in an international form of inflation that has never been seen before.
US Federal Reserve Bank Actions
The US Fed bumped interest rates for the first time in five years. That move alone dramatically affected foreign currency exchanges as nearly every major pair underwent a recalibration based on the US government’s actions. In particular, the effects of the military conflict in Eastern Europe have impacted the ruble and dollar the most but have subsequently caused large movements in other major and minor forex pairs.
The Sturdy US Dollar
Traders bought US dollars as soon as the Ukraine-Russia hostilities began, causing a major strengthening of the greenback in February of 2022. But by the end of that same month, the main US-based index numbers began to perform poorly. Even so, the sturdy dollar remained strong due primarily to its role as an international safe haven currency. When the military conflict did not mushroom into a wider war, many markets showed signs of relief and recovery for a short time. But the dollar once again performed admirably in the broader foreign exchange sector. The Fed’s activity during that time, principally raising domestic interest rates, continued to buoy the greenback.
Possible Recession
As winter lingers on, chances for a European- and US-based recession are a near certainty. The impetus behind the movement toward a recessionary international economy is connected to higher oil, gas, grain, and other commodity prices. Some nations in Europe already have enacted legislation to ration energy during the upcoming months, particularly if the weather is worse.
While individuals and businesses try to cope with across-the-board inflation, national governments are apparently dedicated to starving the inflationary factors before they become worse. Higher rates of interest are the chosen weapon of politicians at this time. The good news is that the tactic could be effective in the long run. The negative side is that corporations and families will find it more difficult to borrow the money they need to get through some of the most challenging times in recent memory.
Capital Market Volatility
The Eastern European war has drastically impacted Forex, petroleum, bond, and equities markets in the West. After the first days of the hostilities in late February, many sectors saw major gains. Since then, nearly every significant capital market in the developed world has watched values tumble. The seesaw effect progressed to the next stage when, after price declines, values took a U-turn once energy shortages reappeared, and it looked as though a recession was on the horizon for early 2023.
