Russian rouble hovers near 5-year highs vs. euro
On Monday, the Russian rouble surpassed 64 percent and rose to its best level in over five years against the euro, aided by continued currency trade restrictions. The rouble was 2% firmer against the dollar at 63.21, close to its highest level since early February 2020 of 62.6250, which it reached on Friday. The rouble surged 2.3 percent against the euro to 65.60, remaining close to its highest level since June 2017 of 64.9425, which it came on the Moscow Exchange on Friday.
The impasse between Moscow and the West and fears of fresh penalties to punish Russia for what it terms “a special military operation” in Ukraine are in the spotlight. However, their influence mitigates by export-focused enterprises’ required conversion of foreign currency and other constraints. Russian stock indexes have risen.
The RTS index in US dollars was up 4.2 percent to 1,180.1 points. The MOEX Russian index in roubles increased 2.7 percent to 2,368.6 points.
Eurozone bond yields rise
On Monday, government bond rates climbed back to multi-year highs as European Central Bank policymaker Francois Villeroy de Galhau warned that a weak euro threatened the currency bloc’s price stability.
According to Villeroy, the euro’s decline in currency markets might jeopardize the ECB’s efforts to drive inflation.
Since February, the currency has dropped over 9% and hit its lowest level since 2017.
Villeroy’s remarks drove further volatility into bond markets, which had recovered in price last week as investors reassessed the prospects for battered national debt due to mounting fears about the global growth.
Germany’s 10-year Bund yield increased by more than five basis points (bps) to slightly over 1%, erasing earlier declines. After reaching around eight-year highs above 1% earlier this month, Bund yields fell to as low as 0.85 percent last week.
Italian 10-year bond yields jumped 7.5 basis points to 2.92 percent, widening the spread over safer German Bunds to 193 basis points, up from 189 basis points late Friday.
Money markets reacted as investors increased their rate-hike expectations, with around 95 basis points of ECB tightening priced in by year’s end. This increase from over 80 basis points on Friday would be equivalent to the ECB delivering more than three 25-basis-point rises. A crucial indicator of long-term euro zone inflation forecasts rose to 2.23 percent.
