Europe's currency is depreciating before our eyes

On Friday, the euro exchange rate updated its three-month minimum, falling below 65 rubles/€ in exchange trading. The dollar exchange rate also dropped below 60 rubles/$. Currently, all the prerequisites have been created for the further strengthening of the Russian currency - a general weakening of the European currency in the world, as well as a reduction in tension in eastern Ukraine and stabilization of oil prices. However, this does not free the Russian market from sharp fluctuations associated with its liberalization.

Photo: Safron Golikov, Kommersant / buy photo

Yesterday, the euro exchange rate at trading on the Moscow Exchange fell below 65 rubles/€ for the first time since the end of December. During trading, the rate dropped to 64.88 rubles/€, although at the end of the main session it stopped at 65.6 rubles/€. Nevertheless, over the week the European currency fell in price on the Russian market by 3.9 rubles, the euro exchange rate returned to the values on December 26. Following the results of yesterday's trading, the dollar exchange rate stopped at 60.39 rubles/$, which is 1.2 rubles. below last Friday's close. During trading, the US currency rate dropped to 59.28 rubles/$.

How the ruble fell from the Moskvoretsky Bridge

Over the past week, the movement of the European currency on the Russian market was largely determined by its behavior on the world market. According to Bloomberg, during yesterday's trading the euro exchange rate against the dollar dropped to $1.0866, the lowest value since September 4, 2003. This value is 1.5% below Thursday's close and more than 9% below the close a week ago. The sharp depreciation of the European currency began on Thursday after a press conference by the head of the ECB following a meeting of the regulator’s board of directors. Mario Draghi announced that the quantitative easing (QE) program in the eurozone will start next week. The total volume of ECB acquisitions, as previously announced, will amount to up to €60 billion per month, and the program itself will last until the end of September 2016 or until inflation stabilizes at 2% per annum. “World markets have received sufficient evidence that the European Central Bank is ready to act decisively in improving conditions in the eurozone financial market to eliminate the threat of deflation and economic stagnation,” notes Zenit Bank analyst Vladimir Evstifeev.

While the ECB is ramping up its asset purchase program, in the US, falling unemployment allows investors to count on tightening monetary policy from the Federal Reserve. According to Labor Department data published Friday, the number of jobs in the country's economy grew by 295 thousand in February. Experts surveyed by Bloomberg expected a lower result - 235 thousand. Unemployment in the United States fell to 5.5% in February from 5.7 % a month earlier, although experts expected a decrease to only 5.6%.

According to analysts, the situation on the labor market has improved, which may contribute to tightening monetary policy by the US Federal Reserve and support the strengthening of the dollar.

An additional reason for buying rubles was the stabilized prices on the world oil market and the neutral news background around Ukraine. Yesterday, according to Reuters, the price of North Sea Brent oil reached $61.25 per barrel. “The news flow from Ukraine is no longer negative, and oil prices have stabilized above $60 per barrel, so investors are returning to the noticeably cheaper ruble,” notes Yuri Tulinov, head of the research and analytics department at Rosbank. According to the chief analyst at Nordea Bank, Dmitry Savchenko, the truce in eastern Ukraine is forcing “the geopolitical discount to gradually leave the market.” In such conditions, demand for ruble assets is shown not only by Russian, but also by foreign investors. According to Emerging Portfolio Fund Research, in the week ending March 4, funds inflows into Russia-focused funds amounted to $34.3 million, and over six weeks of continuous inflows, investors invested almost $450 million in Russia.

Market participants expect the continuation of the game to increase the ruble exchange rate, although they note increased volatility of the Russian currency. “The ruble is in new conditions associated with the liberalization of the foreign exchange market, which means that it is more susceptible than before to a sharp change in investor sentiment,” notes Vladimir Evstifeev.

Vitaly Gaidaev

The euro is falling like the ruble