Let's face facts; a month can represent an eternity in politics.

Just over a month ago, the Russian ruble soared to its highest level against the dollar in 18 months, against the backdrop of relatively high domestic interest rates and increased foreign investment. Donald Trump's courting of Russian President Vladimir Putin also improved relations between the Kremlin and the White House, creating far higher levels of business and investor sentiment across the board.

The U.S. President's hasty and surprising decision to intervene in Syria and sanction the bombing of a government airfield (in response to a reported chemical weapons attack) has cast a huge shadow over the political landscape, however, while sending American-Russian relations to a familiar low.

The Fall-out From the Intervention, and How it Hit the Russian Markets Hard

Quite aside from the validity of Trump's strike (particularly given the lack of defined intelligence) and the fact that such a move was diametrically opposed to one of his core campaign pledges, the intervention also hit the markets hard. Russia's currency and stock markets fell in the immediate aftermath of the strike sending ripples throughout the forex trading world, for example, with the rouble tumbling by 1% against the dollar and the nation's primary index depreciating by 1.8%. This decline came against a surge in the price of oil, which is typically a key driver of growth and prosperity within the Russian economy.

The U.S. Dollar has continued to trade higher against the rouble in the days since the air-strike, as Russian derivatives and equities continue to bear the brunt of the economic fall-out. Make no mistake; however, the long-term implications of a further breakdown in Russia-America relations are far more troublesome, both from a financial perspective and the standpoint of geopolitical harmony.

After all, the uneasy truce that had existed between Trump and Putin had delivered a boost to the Russian markets, while their respective nations had also worked together strategically to repel rebel IS forces in the Syrian heartland. Gradually undermined by continued reports relating to Russian interference in the U.S. election and now damaged considerably by Trump's impulsive military action against the Syrian government, however, relations have thawed significantly and left the near and long-term future of the Middle East in doubt once again.

How Will the Russian Economy Respond Going Forward?

With the two countries now involved in a tense stand-off, we are already seeing barbed comments on both sides of the divide. Trump, who had been initially willing to roll back sanctions relating to the occupation of the Ukraine (which contributed to seven consecutive months of economic decline in Russia between 2015 and 2016), may now be inclined to keep them in place. Similarly, Russia has increased its military support for the Syrian government, delivering a show of strength that Trump can ill-afford to ignore has he also duels with North Korea and China.

Such sustained animosity and uncertainty has a destabilising impact on the geopolitical climate, while it also makes it hard for currency and stocks to trade outside of a narrow range. We should therefore probably expect the ruble and Russia's stock index to trade lower for the foreseeable future, unless the two nations can agree on a compromise and resume the productive dialogue that Trump promised prior to his election.
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