Russian Ruble Hits More than 2-Year High
In early trade on Tuesday, the Russian ruble hit a more than two-year high versus the euro before settling near Monday’s close, in a week when tax payments are supporting the currency and investors anticipate a rate decrease on Friday.
The ruble was trading at 76.90 versus the euro at 0817 GMT, up 0.3 percent from 75.95 earlier, its highest level since early March 2020. It was 0.1 percent higher against the US dollar, trading at 73.04.
Trading activity has been modest and unpredictable compared to levels witnessed before February 24, when Moscow moved tens of thousands of troops into Ukraine. Capital controls implemented by the central bank unfairly limit ruble movement. The economy faced surging inflation, capital flight, and the possibility of a potential debt default after the West imposed strong sanctions.
According to Promsvyazbank analysts, Russian enterprises set to pay income tax on Thursday should provide additional support to the ruble this week.
Payments in April may have set a new high. Following a recent loosening of currency regulations, exporters’ foreign currency sales may come to a halt this week; this will put pressure on the ruble.
The market is also anticipating the Fed’s rate announcement on Friday. In the face of increasing inflation, the central bank expects to drop its benchmark interest rate by 200 basis points to 15 percent.
Lower interest rates help the economy by making financing more affordable. Still, they can also fuel inflation and make the ruble more sensitive to external shocks. The Russian stock exchange indexes were rising.
Dollar Gains to Two-Year High
The US dollar advanced further in early European trade Wednesday, trading near two-year highs on safe-haven flows as traders assessed slowing global growth, increased geopolitical tensions, and the likelihood of further Fed tightening.
The Dollar Index measures the value of the US dollar against a basket of six other currencies; it was 0.2 percent higher at 102.532; the highest since March 2020 and on track for its best month since 2015.
Russia announced intentions to restrict gas deliveries to Poland and Bulgaria beginning Wednesday due to a dispute over fuel payments; benefiting the safe-haven dollar.
EUR/USD declined 0.2 percent to 1.0618, a five-year low, on Europe’s energy security concerns. In contrast, the dismal GfK German consumer confidence index, which expects to fall to a five-year low in May, also weighed. With the Bank of Japan poised to convene overnight, the USD/JPY climbed 0.5 percent to 127.81; not far from its recent 20-year low.
In contrast to the hawkish Federal Reserve, this central bank has maintained a relatively supportive monetary stance. Still, traders perceive the risk of policy changes to try to arrest the currency’s recent slide.
GBP/USD moved higher to 1.2577 but fell to a new 21-month low as the Bank of England’s tightening cycle reconsidered following last week’s dismal retail sales data.
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