Euro-Dollar Could Rise By 7% on "Gamechanger" Ukraine Peace Deal
- Written by: Sam Coventry
File image of Volodymyr Zelensky. Copyright: European Union.
SEB says the euro could rally by as much as 7.5% against the dollar if a credible peace agreement is struck between Russia and Ukraine.
The Scandinavian lending giant argues that such a breakthrough would be a "game changer for European growth and inflation dynamics" by boosting household spending power and reigniting the manufacturing sector.
"EUR/USD upside would be front-loaded via equities, with energy a modest tailwind and rates reinforcing over time," SEB wrote in its Macro & FICC research note.
Analysts see the euro rising to between 1.19 and 1.25 in the aftermath of a deal, implying a 2% to 7.5% increase from current levels.
SEB highlighted three drivers behind a potential surge: European equity outperformance, lower energy prices, and a narrowing of U.S.–Europe interest rate differentials.
"A Ukraine peace deal would stabilise Europe’s terms of trade, unleash equity outperformance, and eventually tighten rate differentials versus the U.S.," says SEB.
The research warns that gas and oil price declines would be politically slow to materialise, meaning equities are the more likely near-term driver.
"An opposite move of around 10% in favour of the STOXX600 versus the S&P500 does not strike us as unreasonable in the event of a peace deal," says the research note.
The bank also points to January’s "European optimism" episode, when STOXX600 outperformance of 14% over U.S. equities propelled EUR/USD higher, as a comparable framework.
The pound is expected to strengthen less dramatically under a peace scenario, given that the euro remains more directly tied to shifts in European energy prices and regional risk sentiment.
During the invasion shock in 2022, both the euro and pound fell 1–2% against the dollar, while commodity exporters like NOK, AUD, and CAD gained.
Above: EUR/USD on a long-term perspective.
SEB says a peace deal would likely reverse that pattern, with European currencies including the euro, pound, SEK, and CE3 (HUF, PLN, CZK) rallying, while exporters could underperform.
"European currencies, particularly the CE3 and SEK, would strengthen sharply versus USD, while commodity exporters would lose ground," the bank noted.
The analysts add that narrowing rate spreads could reinforce euro strength in later stages, echoing the 50-basis-point compression that accompanied Germany’s fiscal boost earlier this year.
They caution that market sensitivity to rates may vary, with risk assets driving initial gains and spreads taking over later.
The report concludes that EUR/USD is likely to gain around 5% in a mid-case outcome, with a credible Ukraine peace deal setting up "a new period of European optimism."
