The Russian ruble is extending its weakness against the US dollar and the euro in the middle of the trading week, driven by US-led sanctions on Moscow. Despite optimism on the ruble over the last several months, Wall Street has turned increasingly bearish on the currency. What is next for the ruble?
President Joe Biden outlined a series of new sanctions on Russia from the White House on Tuesday. The latest restrictions would target two state-owned banks, the Nord Stream 2 pipeline, and foreign debt from Western nations.
But while the consensus is that these sanctions and a potential military conflict in Eastern Europe would trigger a surge in energy prices, the US State Department insisted that these efforts do not intend to disrupt gas flows.
Russian currently supplies Europe with more than 60% of its oil and gas needs, and Ukraine is a critical transit route for 30% of Russia’s energy exports.
As a result of the geopolitical tensions, Russian stocks and exchange-traded funds (ETFs) have endured intense selloffs. However, some analysts wonder if Russia could suffer economically, considering that higher energy prices would benefit the country and it has established vast agreements with markets like China.
On the data front, producer prices remain high in Russia, although they are showing signs of easing. The producer price index (PPI) surged at an annualized rate of 23.1% in January, down from 28.5% in December.
Moreover, the full year gross domestic product (GDP) growth for 2021 was 4.7%, up from the 2.7% contraction in the previous year.
The broader Ukraine-Russia consequences for the global economy are also intensifying.
“You have to look at the backdrop against which this is coming,” Gregory Daco, the chief economist for consulting firm EY-Parthenon, told The New York Times. “There is high inflation, strained supply chains and uncertainty about what central banks are going to do and how insistent price rises are.”
The USD/RUB currency pair advanced 3.04% to 81.22, from an opening of 78.83, at 19:25 GMT on Wednesday. The EUR/RUB increased 2.83% to 91.81, from an opening of 89.28.