Dollar Falls as Trump, Putin Talk Over End to War in Ukraine

The US dollar has taken a tumble as President Donald Trump and Russian President Vladimir Putin engage in talks aimed at ending the war in Ukraine. Market players are speculating that a resolution to the conflict could lead to a partial lifting of sanctions on Russia, which would have significant implications for the rouble and other emerging currencies.



The rouble has been on a rollercoaster ride since the start of the war in Ukraine. It initially slumped to its weakest mark since March 2022 but has since strengthened by about 10% to become the best performing currency across emerging markets in 2025. Despite US energy sanctions imposed on Jan. 10, the currency is on track for its best month since emergency interest rate hikes, capital controls, and other measures shored it up in the wake of the February 2022 invasion.

However, the rouble's value has been driven more by battlefield developments and sanctions rather than macroeconomic fundamentals, making it challenging to calculate its fair value. Estimates are getting scarcer, and many international analysts have stopped publishing rouble research and calculations.



Some analysts expect a rally in the rouble driven by payments for Russian exports and resumption of some foreign investment amid a potential gradual re-integration into the global system. However, others point to huge deferred demand for imports from industries such as aviation or power generation, which could send the rouble into a free fall.

The central bank said in a Jan. 17 report that the real effective exchange rate, a measure used to approximate the "fair value" of a currency, was 9% below its 10-year median. Russian business leaders, including Sberbank CEO German Gref and Bank VTB CEO Andrei Kostin, have said that a level just above 100 to the dollar is comfortable for the economy.



Rouble moves have been much more unpredictable since spring 2022, with the currency plummeting to 150 to the dollar at the start of the war and sharply strengthening to around 50 to the dollar in June 2022. It last traded at around 101.5 to the dollar.

Dollar and euro trades moved to over-the-counter markets between banks after the US sanctioned the Moscow Stock Exchange (MOEX) in June 2024. China's yuan became the most traded currency on MOEX and currency of choice for central bank interventions. The central bank sets official exchange rates based on interbank trade data supplied by lenders and – together with rouble/dollar futures trading on MOEX – provide the best proxy for the over-the-counter market rates, according to FX traders.



Just under half of Russia's 316 banks are not under sanctions and can buy and sell dollars and euros. Subsidiaries of some major Western banks such as Italy's UniCredit, Hungary's OTP, and Austria's Raiffeisen Bank International are also operating there. Domestic demand for dollars and euros comes from importing companies, since 15% of imports still come from Europe but the share of dollars and euros in foreign trade is seen decreasing.

In conclusion, the potential easing of sanctions on Russia following Trump-Putin talks could have both positive and negative impacts on the rouble's value and stability in the long term. While a partial lifting of sanctions could lead to increased exports and foreign investment, generating more foreign currency inflows and strengthening the rouble, it could also lead to a surge in demand for imports, putting downward pressure on the currency. The ultimate outcome will depend on various factors, including the extent of sanctions relief, the pace of Russia's re-integration into the global system, and the evolution of the conflict in Ukraine.