What can investors expect in the aftermath of the Russian invasion
Russia’s invasion of Ukraine has been a huge, stand-out event in the first quarter of 2022. The invasion itself seemed to brew slowly from the late stages of 2021, yet the sudden eruption of the war at the end of February 2022, still came as a shock, and took the world by surprise.
The invasion – as with most wars or political conflicts– has brought about significant impacts on a global scale, across multiple sectors and industries worldwide. One of the major impacts of this invasion, is the way it has affected countless economies, in a huge variety of ways.
For all the investors and traders reading this, it’s likely this impact has been at the forefront of your mind for some time. As you would know, the economic impacts of the invasion of Ukraine, will most definitely alter a wide range of financial markets, and heavily affect the outcomes of several trades.
Among the vast range of markets the invasion will affect, it will have a significant, if not the biggest, impact on the foreign exchange (forex) market. For all forex traders – whether that’s trading traditionally on the market, or through contracts for difference (CFD) on Plus500, for example – it’s essential you’re aware of the ways the forex market will respond in the aftermath of the invasion.
Read on, to learn exactly what to expect for the forex market, in the aftermath of the invasion.
Interest and inflation rates
Not only are global inflation rates already on the rise, but the invasion is expected to increase inflation even further.
Almost every aspect of living has been disrupted in Ukraine. This includes the tragic loss of lives, as well as businesses being halted or destroyed. There are also major interferences in production and of supplies of several commodities – food, clothing, energy,etc.
This is likely to increase inflation rates massively for the Eurozone, as all goods supplied by Ukraine will be interfered with. Ukraine is the biggest global supplier of sunflower oil, supplying 60% to the world,along with Russia. With such commodities being disrupted, this willimpact the performance of the Eurozone.
Therefore, as a forex investor, expect to seea decrease in the value of the Euro (EUR), particularly against the US Dollar (USD).
Energy supplies
The invasion has also had a huge impact on energy supplies throughout Europe. In 2021, 49% of Russia’s crude oil and 74% of its natural gas was exported to Europe. Russia is Europe’s main energy supplier.
However, in the aftermath of the invasion, Europe has imposed a variety of sanctions on Russia, as a way ofcondemning and discouraging the continuation of the invasion. Air and sea shipments, for example, that are regularly imported from Russia have been greatly affected.
With these sanctions, Russia’s supply of energy to Europe has been significantly reduced. Russia has even discussed cutting off the supply entirely, in retaliation to the sanctions.As a result, on March 7th, European gas prices hit an all-time high of €345 per megawatt-hour.
As commodity imports like this are reduced, this may well result in further inflation across Europe, and thus, investors may find there’s a greater chance of the EUR decreasing in value.
Resolution
One of the biggest questions arising, is when, and how, the invasion is likely to end.
The essential nature of this question, is due to the fact that investors are extremely cautious of investing in Europe at this current time. As with any war that may occur, the invasion has produced mass uncertainty on a global scale, which has made investors lean towards selling EUR/USD, and thus aided its decreasing value.
However, signs of a resolution in the invasion are a sure way to restore confidence in investors, and begin to re-establish a steady rise in the EUR’s value.
For instance, talks of peace have been hinted at by the Russian Foreign Minister, and as a result, the EUR made a quick increase to $1.10 on March 16th. Evidently, the hope for an end to the invasion might be the driving force for rebalancing the EUR’s value, so it’s important for investors to keep an eye out for this moving forward.
The aftermath of the invasion is expected to have a ripple effect across the Eurozone, and aside from a few signs of a resolution, the end is certainly not in sight. Therefore, investors are advised to continue monitoring the events taking place, and apply this knowledge to executing more strategic, informed forex trades.