Ruble Rises Second Day as Traders Unwind Ukraine Escalation Bets

The ruble strengthened for a second day as investors pared bets the currency will depreciate amid signs the conflict in Ukraine isn’t escalating.

The currency gained 0.3 percent to 36.0135 per dollar as of 11 a.m. in Moscow. The yield on 10-year government bonds fell 11 basis points to 9.79 percent after rising to the highest level since October 2009 last week.

Russia ended military drills in Astrakhan, sending troops back to their permanent bases, Interfax reported Aug. 8. Ukraine is trying to dislodge separatists from eastern strongholds in Donetsk and Luhansk as Russia raises the pressure on its western neighbor to halt the campaign and allow immediate assistance.

“The latest acceleration of the ruble’s decline was fed solely by expectations of a Russian military invasion in eastern Ukraine,” Dmitry Polevoy, chief economist for Russia at ING Groep NV in Moscow, said in an e-mailed note. “The lack of further conflict escalation forces the most aggressive foreign speculators to switch back into rubles.”

The ruble advanced 0.4 percent to 48.2450 against the euro and traded 0.4 percent stronger versus the central bank’s target basket of dollars and euros at 41.5199. The threshold at which the central bank starts intervening to slow the local currency’s decline by buying $200 million of rubles per day, is 42.45 rubles against the basket.

The ruble is the worst performer among 24 currencies of emerging countries tracked by Bloomberg in the last month, with a 5 percent decline against the dollar.

The ruble is too weak versus the dollar based on fundamental factors and it may “continue on a stronger footing this week, unless there is yet another spike in political tensions,” VTB Capital analysts Maxim Korovin and Anton Nikitin said in an e-mailed note.

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