Editorial|Editorial
The effects of geopolitical crises on exchange rates have historically been short-lived and seldom strong.
If a listed stock would be asked which would have a stronger impact on prices, U.S. Federal Reserve Chairman Jeremy Powell or Russian President Vladimir Putin, and the share would respond – if it could speak – to Powell.
The effects of geopolitical crises on exchange rates have historically been short-lived and seldom strong. What is essential is what phase of the economic cycle and monetary policy the crises have erupted.
Deutsche Bank analysts Binky Chadha and Parag Thatte made a calculation a few years ago of the exchange rate effects of major geopolitical events. The duo followed the exchange rate effects of the crises since World War II. The data were collected by monitoring the value of shares of major American listed companies.
The result was that the big turning points in the world only have an effect for a moment, and the fall in prices is not even strong. The average fall in prices is less than six percent. The bottom is dropped for three weeks and the bottom is raised for three weeks.
Crimea occupation is hardly noticed in course development. The bombing of Pearl Harbor during World War II was cleared with little stock market damage. The terrorist attacks of September 11, 2001 made a bigger dent in New York and moods than stock prices.
The strongest shocks to the stock market have come when the crisis is having a direct economic impact on the United States. The Israeli-Arab Yom Kippur War of 1973 and the ensuing oil crisis were the worst. Shares of large listed companies recovered to pre-crisis levels four years later.
One could conclude that if the war in Ukraine escalates, the effects on exchange rates could be stronger than average. It is a matter of time. In the United States, inflation has accelerated and the Fed plans to raise its policy rate in the near future to curb inflation. Monetary policy is a stronger factor in exchange rate movements than military policy.
The editorials are HS’s statements on a topical issue. The writings are prepared by HS’s editorial staff and reflect the magazine principle.
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