The trigger for a sharp rise in the rouble may have been Belarus saying Russian troops would leave its territory once military drills, scheduled to end in February, are over, market participants said. “There was already active dollar selling since this morning, but the news from Belarus accelerated this process,” a dealer at a large Russian bank said.
As investors’ fears of an impending escalation of tensions over Ukraine faded, the rouble gained over 1% against the dollar on Thursday, pushing away from a near 15-month low recorded the previous day. On Wednesday, the rouble fell to its lowest level since early November 2020, before recovering some of its losses when the US announced that it had put up a diplomatic avenue to satisfy vast Russian demands in eastern Europe. Moscow expressed interest in continuing the talks on Thursday. The rouble was 1% firmer against the dollar at 78.65 at 1153 GMT, recouping all of Wednesday’s losses. In the previous session, it had plummeted to 80.4125. The rouble rose 1.8 percent against the euro to 87.77.
Russian and Ukrainian sovereign dollar bonds rose and the cost of insuring exposure to Russia eased, while yields on Russia’s 10-year OFZ bond yields eased to 9.66%, down from their highest since early 2016 of 9.86%. Yields move inversely to prices. Deputy Finance Minister Timur Maksimov told Reuters any tightening of western sanctions on an already pressured Russian domestic bond market would make borrowing more expensive for the government.
The rouble outperformed other emerging market currencies, which were largely down against a stronger dollar, resurgent after U.S. Federal Reserve Chairman Jerome Powell on Wednesday surprised investors by leaving the door open to larger and faster-than-expected interest rate hikes. “We note that the rouble now looks markedly oversold, which despite the negative background, may affect a sharp recovery in the rouble’s position,” Promsvyazbank analysts said in a note.
Volatility has characterised Russian markets as the West has feared Russia is poised to invade neighbouring Ukraine, something Moscow has repeatedly denied. The West has threatened sanctions with profound economic effects should Russia attack. British Prime Minister Boris Johnson said he was discussing banning Russia from the SWIFT global payment system with the United States, one of the harshest measures being considered.
Brent crude oil, a global benchmark for Russia’s main export, was up 0.7% at $90.55 a barrel, at a more than seven-year high. Russian stock indexes continued their recovery after a deep sell-off on Monday. The dollar-denominated RTS index was up 4.1% at 1,378.1. The rouble-based MOEX Russian index was 2.5% lower at 3,440.9. The market rout has cast doubt over the prospects for Russian initial public offerings this year.
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