Euro to Benefit on Ukraine Peace Deal: Analysts
- Written by: Gary Howes
Above: File image of Russian President Putin. Image: Kremlin.ru.
The Euro is poised to benefit in the event U.S. President Donald Trump strikes a peace deal between Ukraine and Russia.
FX market focus turns to today's meeting between Trump and Vladimir Putin in Alaska, where it is hoped significant progress towards a ceasefire is made.
"A cease fire between Russia and Ukraine could also be a game changing catalyst, which could strengthen the euro significantly, because it would improving economic activity in the euro area by lowering energy prices and lifting consumer and business confidence, but that is not a part of our base case either," says a note from Nordea Bank, released August 14.
Expecting a deal as early as Friday is unrealistic, but there is a strong chance that it lays the foundations to an eventual end to the conflict.
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With the Euro already 12.75% up on the Dollar in 2025, further gains become possible if geopolitical risks centred on Europe's eastern flank dissipate.
"If the Anchorage summit offers a material positive surprise, we expect a knee-jerk support for EUR and CEE FX," says Marek Raczko, an analyst at Barclays.
Russia's invasion of Ukraine marked a turning point for the European economy, which was heavily reliant on Russian hydrocarbons. Without cheap gas in particular, German industry became increasingly uncompetitive.
Although Europe is unlikely to return to Russia for gas for a generation, a peace agreement would at least trigger lower global oil prices, which can unlock some potential economic upside for Europe, a continent that is overwhelmingly an oil importer.
Economists at Citi say progress on a peace plan, or even a deal, "can involve (eventual) reduced restrictions on Russian petroleum exports. On the downside, both fundamentals and positioning data suggest prices might fall ~$3 to $4/bbl."
Citi estimate Brent prices could land in the low-$60s/bbl if there is progress toward a US-Russia deal, consistent with our 4Q25 price average.
Barclays modelling shows that there is still some small EU-specific war premium in the Euro, even though it has reduced greatly since the invasion.
"Hence there might be around 1.3% risk premium embedded in the EURUSD and some additional premium in CEE currencies," says Raczko.
"FX sensitivity to past changes in our indicator gyrations suggests that HUF, PLN, CZK and EUR would benefit the most in the case of any positive news from Anchorage talks, while CHF, NOK, and BRL could be under pressure, given their safe-haven status or oil sensitivity," he adds.
"CE3 and EUR benefit most in a de-escalation" - Barclays.
Trump will meet Putin in Anchorage later today and is expected to offer the Russian leader economic incentives to end the war.
Any deal would almost certainly involve the ceding of Ukrainian lands seized by Russia during the invasion. Putin will hope Friday's summit in Alaska yields the legitimisation of this land grab.
He will also demand that Ukraine hands over more land in order to end the invasion. This makes for an incredibly difficult negotiation, and makes disappointment likely.
On Thursday night, Trump said that Putin would not "mess around with me" and threatened to impose further sanctions if he failed to offer a meaningful resolution to the war.
Given the challenges, markets are understandably sceptical, but this does suggest a breakthrough would amount to a genuine surprise, one that could move the market and result in a strengthened Euro.
