Ruble falls to 2 weeks low in anticipation of EU sanctions | 02.22.21

The ruble fell significantly on the Moscow Exchange on Monday following the currencies of developing countries.

In anticipation of the decision of the European Union on sanctions and on the news about the disagreements between Moscow and Riyadh on the eve of the OPEC meeting, for the first time since February 5, the dollar on the Moscow Exchange rose above 75 rubles.

Tomorrow deals were concluded at 75.0750 rubles per dollar, before the rate retreated to 74.8650 at 15.28 Moscow time (+70 kopecks).

The euro broke through the 90 rubles mark for the first time in two weeks and is trading at 90.76 rubles, adding 87 kopecks.

On Monday, the foreign ministers of the EU countries will discuss a sanctions package in connection with the case of Alexei Navalny, whom the Russian authorities continue to hold behind bars, ignoring the requirements of the ECHR.




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According to Bloomberg, Europe is not planning any tough economic measures or freezing the assets of Russian oligarchs, intending to limit itself to sanctions against officials and structures directly responsible for the arrest of Navalny.

Austrian Foreign Minister Alexander Schallenberg publicly called on his colleagues to “not rush” with tough sanctions, according to whom “black lists” should be “politically literate and legally impenetrable.” “Otherwise, we’ll cut the branch we’re sitting on,” he said in an interview with Welt am Sonntag.

The US administration is showing more resolve, threatening to respond with “more than just sanctions” to the largest cyberattack against the US government, in which the intelligence services blamed hackers associated with the SVR.

The response will be ready “within weeks” and will include both “visible and invisible tools,” said US national security adviser Jake Sullivan.

The talks about sanctions add problems to the ruble, which is already under pressure from capital outflows from emerging markets.

MSCI’s EM Index fell 1.4% on Monday, or a three-week record, while currencies slipped 0.2%.

The Brazilian real plummeted 2.4% and the South African rand plummeted 1.7% amid rising US government bond yields, hitting the attractiveness of carry-trade operations.

US 10-year securities rates soared from 0.6% in August and 1% at the beginning of the year to 1.34%, and most economists surveyed by Bloomberg predict further growth.

“Before the pandemic, the yield on 10-year bonds was about 1.6%, and if we return more or less to the same economic situation as at the time, there will be no reason why yields should be below that level,” – says Stephen Stanley, chief economist at Amherst Pierpont Securities.

He predicts that the rate on 10-year US securities will reach 2% by the end of the year – the level that was last observed in August 2019.

But even at current levels of US debt yields “pose a threat” to emerging market currencies, JP Morgan analysts write.

The higher the rates in the USA are taken, the less the premium in the yield of the currency and EM debt, for which funds go to carry-trade, becomes.

“The level of rates (in the US) and the rate at which they are growing is becoming a challenge for high-yielding currencies,” states JPM.