Rouble leaps after Russia says some troops are returning to bases

The rouble rose on Tuesday, extending gains from the previous session, after Russia said some troops near Ukraine were returning to their bases after military exercises, following a Russian asset sell-off last week on renewed invasion fears.

The rouble soared after Russia’s defence ministry was quoted as saying that some troops in Russia’s military districts adjacent to Ukraine were returning to bases after completing drills, a move that could de-escalate tensions between Moscow and the West.

By 0831 GMT, the rouble was 1.5% stronger against the dollar at 75.62, still some way off levels past 75 it hit before its sharpest drop in nearly two years on Friday.

The rouble strengthened 1.3% against the euro to 85.62.

On Monday, the currency gained after Russian Foreign Minister Sergei Lavrov suggested to President Vladimir Putin that Moscow should continue along the diplomatic path in its efforts to extract security guarantees from the West.

The currency’s reaction to those words showed that a single phrase can be sufficient to move the rouble strongly in either direction, said Dmitry Polevoy, head of investment at Locko Invest.

“We still believe the rouble is likely to rise from these levels,” he said. “According to our rough estimate, the rouble has lagged other EM currencies by 5-7% since the start of the year.”

Russia’s troop buildup has spooked Western powers, many of whom have warned Russia could invade Ukraine imminently, something Moscow has repeatedly denied planning.

“The shuttle diplomacy continues – as long as the West remains vocal on the issue, the market will continue to follow headlines, with the binary outcome (a further deterioration vs conciliation) suggesting significant up/downside,” BCS Global Markets said.

The rouble also received support from export-focused companies selling foreign currency earlier this week, VTB Capital said.

Brent crude oil, a global benchmark for Russia’s main export, was down 1.5% at $95.00 a barrel, but not far from a more than seven-year high.

Russian stock indexes were up, also recovering after a sell-off in the previous two sessions.

The dollar-denominated RTS index rose 4.7% to 1,492.7. The rouble-based MOEX Russian index was up 2.8% at 3,579.9.

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