Euro, rouble trim losses as Russia-Ukraine talks begin

London

THE euro pared some of its earlier losses on Monday (Feb 28), mirroring the rouble, which also trimmed some of its declines from an all-time low, after Russia said it had started talks with Ukraine.

Russia's foreign ministry on Monday said talks between Ukraine and Russia had begun, shortly after the Ukrainian side had said the same. Russia launched an invasion of Ukraine on Thursday.

After plunging 30 per cent to 120 per dollar, the rouble recovered some ground. It was still down 20 per cent, however, changing hands at 102 per US dollar at 1210 GMT. The euro, which fell around 1 per cent in early London trading, was 0.7 per cent lower against the US dollar at US$1.1194. It also pared some of its declines against the yen to trade 0.6 per cent lower at 129.4 yen per euro.

"The euro is holding on well this morning all said and done, based on some recovery in the rouble," said Neil Jones, head of FX Sales at Mizuho Bank. "The market is turning its attention to Russia/Ukraine talks".

The euro was still 1 per cent lower versus the Swiss franc at 1.0328 as the safe haven was in demand after Western nations imposed tough new sanctions on Russia for its invasion of Ukraine.

Western allies have ramped up efforts to punish Russia with new sanctions including cutting some of its banks off the SWIFT financial network and limiting Moscow's ability to deploy its US$630 billion foreign reserves and shuttering their airspace to Russian aircraft. Companies also reported divestment plans. Adding to market nerves, Russian President Vladimir Putin put Russia's "deterrence forces" - which wield nuclear weapons - on high alert.

Those measures are expected to pulverise the country's economy and prevent the Central Bank of Russia from using its foreign reserves for outright FX interventions, analysts said.

Russia's central bank on Monday sharply raised its key policy rate to 20 per cent from 9.5 per cent, a day after announcing a slew of measures to support domestic markets. But that did little to support the rouble.

Separately, a US dollar rally eased, with the greenback edging 0.17 per cent lower to 96.986 against a basket of peers.

Overall across FX markets volatility has soared, with one commonly followed measure hitting its highest since December 2020. REUTERS