Ruble Ends Two-Day Advance as Investors Ready for Fed Meeting

Updated on

The ruble retreated for the first time in three days as investors positioned themselves for signals from the Federal Reserve on the timing of its first interest-rate increase since 2006.

Russia’s currency weakened 0.6 percent to 54.113 against the dollar by 4:44 p.m. in Moscow. That took its loss since mid-May when the central bank started buying dollars to boost its reserves to 8 percent. Government bonds fell, lifting the five-year yield to the highest in a week, as the Finance Ministry auctioned 15 billion rubles ($280 million) of bonds.

U.S. Fed Chair Janet Yellen may provide further clues as to the central bank’s plans after a monetary policy decision at 2 p.m. in Washington. Russian bonds are retreating after policy makers warned of inflationary risks on Monday as they delivered the smallest interest-rate cut since March.

“Investors are buying foreign currencies before the Fed meeting,” Alexei Egorov, an analyst at PAO Promsvyazbank in Moscow, said by phone. “Many are expecting monetary policy tightening, which would make riskier assets less attractive.”

The ruble stayed lower after the European Union was said to reach an accord to extend sanctions against Russia. The EU’s decision over Russia’s role in Ukraine is set for formal approval at a June 22 meeting of foreign ministers without additional discussion, according to two EU officials who spoke under condition of anonymity.

“The news about the EU planning to extend sanctions against Russia isn’t a surprise since the market didn’t expect sanctions to get lifted or softened,” Egorov said.

OFZ Rally

Five-year government bonds, known as OFZs, retreated for a fifth day, increasing the yield by one basis point to 11.19 percent. The Finance Ministry sold out 5 billion rubles of fixed-coupon bonds due in January 2028, while placing less then half of the 10 billion rubles of floating-coupon notes it offered due Jan. 2025.

“The rally in OFZs isn’t over, it just temporarily stopped,” Dmitry Dudkin, the head of fixed-income research at UralSib Capital in Moscow, said by e-mail. “Everyone realizes that the yields will be much lower in six-to-nine months. The rally may resume in October-November when inflation starts falling again.”

The ministry sold 4.72 billion rubles of the floaters, while the demand was 16.6 billion rubles, according to its website.

“Looks like the Finance Ministry simply cut off the demand at the price that suited it,” Dmitry Polevoy, the chief economist at ING Groep NV in Moscow, said by e-mail.

The Micex stock index added 0.4 percent to 1,674.73, led by OAO Gazprom, which climbed 1.3 percent. The dollar-denominated RTS Index dropped 0.4 percent to 974.17.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE