It’s no secret that the Forex market can react dramatically to various factors that influence currency exchange rates. Sometimes, significant price swings are triggered by events that might not seem immediately alarming to traders. But true market turbulence occurs when investors are forced to operate in times of extreme global uncertainty—such as during a war or major international conflict. So, how exactly do such events affect trading?

In recent years, we've witnessed a sharp increase in geopolitical instability and military aggression around the world. Just to name a few: the conflict in Gaza, Russia's invasion of Ukraine, and ongoing nuclear threats from Iran and North Korea. Shocks to global security of this scale inevitably ripple through the currency markets. Put simply: general global stability tends to support consistent currency valuations (and this applies not just to currencies, but also to commodities, stocks, and even cryptocurrencies). The calmer the world, the less extreme the price fluctuations.

Of course, this has its pros and cons. An unstable market is inherently risky, making it easier for traders to make poor investment decisions. On the flip side, volatility creates opportunities for short-term trades based on sudden value shifts in specific assets.

Wars always leave a deep imprint on the global economy, and the Forex market is not immune to the consequences. So what exactly changes in trading during periods of global instability?

Deteriorating Market Sentiment and Risk Aversion

The first and most immediate shift is in trader sentiment. When a major conflict breaks out and dominates global headlines, uncertainty and fear take over. Forex trading tends to slow down during these periods as investors look for safer ways to protect or grow their capital—often prioritizing security over returns. Experienced traders typically move their investments into safer assets, which naturally rise in price. A textbook example of this is gold, which almost always gains value during geopolitical turmoil.

In the Forex market itself, currencies like the U.S. dollar and Japanese yen are often seen as "safe havens" and experience increased demand.

However, the longer a conflict drags on, the more traders begin to adapt to the new reality. Risk tolerance starts to return, and the market gradually becomes more accustomed to operating in unstable conditions.

Commodity Price Fluctuations

Wars and conflicts can cause major shifts in commodity prices, which, in turn, have a significant impact on Forex. Commodity prices are closely tied to the currencies of countries that export those goods.

Take oil-producing nations, for example. If the supply of "black gold" is disrupted due to a conflict in a key oil-producing region, prices are likely to spike. This surge can directly affect the currencies of nations heavily dependent on oil exports—such as Russia, Saudi Arabia, or Venezuela. As a result, the ruble, Saudi riyal, and Venezuelan bolívar may all experience increased volatility on the Crude oil investing market.

Beyond direct price impacts, changes in commodity values can also influence inflation rates, trade balances, and broader economic conditions in affected countries—all of which feed into their currency strength or weakness.

Currency Wars

In some cases, conflicts can lead to so-called "currency wars"—situations where countries deliberately devalue their currencies to boost exports. These moves can spark global trade tensions and further destabilize the Forex market.

Political stability, or the lack thereof, plays a critical role here. Stable governments tend to earn investor trust, which strengthens their national currencies. But wars often bring frequent government changes, domestic unrest, and the rise of new political leaders. And this doesn’t just apply to the countries directly involved in the conflict—it can affect their neighbors and trade partners as well. Just look at how the war in Ukraine has impacted the broader European economy to this day.

Economic Sanctions

Wars often result in international sanctions being imposed—especially on aggressor nations seen as violating international law or human rights. These sanctions can include trade embargoes, financial restrictions, and asset freezes, all of which have a profound effect on the affected country's economy and currency. This can, in turn, cause major fluctuations in Forex markets and significantly weaken the sanctioned nation’s currency.

Refugee Crises

War-time currency prices can be extremely sensitive to both internal and external pressures. Armed conflicts frequently displace large numbers of people, leading to refugee crises. Host countries that receive these populations inevitably bear economic consequences over time. Increased economic strain can weaken the host country’s currency and drive down its market value.

Rise in Speculation

During times of war, speculative trading on the Forex market tends to spike. Increased uncertainty and sharp shifts in macroeconomic conditions create greater price volatility. Traders often try to profit from short-term fluctuations driven by news of conflict escalation, changes in sanctions, or central bank interventions. This speculative surge can further destabilize the market, causing even more erratic price swings—sometimes disconnected from underlying economic fundamentals.

As a result, currency values during wartime are often heavily influenced by sentiment, impulsive investor reactions, and large-scale capital movements. This unpredictability forces central banks and major market players to take stabilizing action.

How to Trade Forex in Turbulent Times

Trading Forex during armed conflicts requires extra caution, discipline, and adaptability. Key risk management tools—such as strict stop-loss orders—become essential, and it’s wise to avoid using excessive leverage. Investors should closely monitor geopolitical news and central bank announcements.

In such a volatile environment, avoiding emotionally-driven decisions, sticking to a clearly defined strategy, and staying ready to respond quickly to changing market conditions are all critical to long-term success.