EUR/RUB to edge lower amid fading geopolitical risks and economic recovery – Danske Bank

Economic recovery in Russia and fading political risks have supported the ruble since April. Economists at Danske Bank expect RUB to edge moderately higher, especially against the EUR, targeting EUR/RUB at 81 in 12 months. The key risk to RUB crosses remains political in nature.

Fading tail risks and economic recovery supports the Russian ruble

“In line with broad Europe, growth in the Russian services sector has continued to accelerate and the Google Mobility indicator reached pre-covid levels in late May. This is well in line with the central bank’s expectation of economic activity having reached pre-pandemic level as of today (Q2). As the recovery is ongoing, the central bank is hawkish and political risks are fading, RUB may see further support from here.”

“From an FX perspective, we continue to see the political situation between Russia and the West as a looming tail risk. Over the past years, Russia has tended to move from skirmish to skirmish, and the recent incident of Russia allegedly firing warning shots towards a UK warship near Crimea acts as a reminder of Russia’s strategy of maintaining constant pressure in the area.”

“Lockdowns, rising inflation, politics and low oil prices were headwinds for the Ruble in 2020 but these factors have turned supportive for stronger RUB. Global risk sentiment has also been supportive, and we expect this to continue going forward.” 

“We expect both USD/RUB and EUR/RUB to edge moderately lower, targeting EUR/RUB at 81 in 12M.”