International oil prices continue to decline, and Russia's energy revenues have also shrunk significantly. Strangely enough, the Russian ruble is actually strengthening— the USD/RUB exchange rate has fallen from 113.75 in November 2023 to 77.20 today, a drop of over 35%. This clearly defies common sense.

Generally speaking, when the main export commodity prices of a country collapse, its currency should depreciate early on. In the first 20 months of this year, Russia's oil and natural gas revenues decreased by more than 11%, yet the ruble stubbornly did not weaken and instead became more valuable. What does this contrast reveal? The market is not really looking at economic fundamentals but is betting on the direction of geopolitical developments.

As Trump returns to the White House, investors are beginning to bet that he might push for an end to the Ukraine conflict. Data from the Polymarket prediction platform shows that the probability of a ceasefire by the end of 2026 has risen to 46%. This shift in expectations has directly affected the market’s risk pricing of Russian assets—from pessimistic to relatively optimistic.

At the same time, the persistently high interest rates maintained by the Russian central bank are playing a role, coupled with the recent weakness of the US dollar. The combination of these two forces has driven the ruble to rally against the trend. In other words, it is the joint effect of geopolitical expectations, monetary policy, and the US dollar’s movement that has created this seemingly illogical yet traceable strong curve of the ruble.