Sanctions threat affect Russian rouble

The Russian rouble has fallen to a record low against the dollar as fears grow of further sanctions.

On Friday (August 29th) the rouble dropped to 37.03 per dollar, representing the worst valuation since it was restructured in 1998. There are now concerns that further sanctions from the European Union (EU) and the US could prove detrimental for the currency once again. The EU has given Russia a one-week ultimatum to reverse its operations in Ukraine or face more sanctions.

Tensions between the West and Russia have intensified in recent days after Nato accused Russia of illegally crossing Ukraine's border, something which Russia has strongly denied. Secretary-general Anders Fogh Rasmussen said Russia had made a "blatant violation" of Ukraine's sovereignty and continues to support Pro-Russian separatists in the region.

Peace talks were held between Ukrainian president Petro Poroshenko and Russian president Vladimir Putin in Minsk last week but the "disappointing" result has impacted on the currency. Russia's central bank had previously pledged to intervene less when it came to the rouble's valuation adding that it would abolish a trading corridor from next year.

This trading corridor limits the swing in the bank's valuation of the rouble in comparison to other currencies such as the dollar and euro. Russia currently has over $400 billion (£240.4 billion) of foreign currency reserves which allows it to spend dollars to purchase roubles in the market when its economy is weak.

Alongside the drop in rouble value, the nation's stocks also suffered as investors brace for potential new sanctions. The RTS Index dropped 1.9 per cent to 1,196, the first time it has fallen below the 1,200 mark since August 8th. The rouble-based MICEX Index had also declined by 1.3 per cent to 1,405.

Find up to date information on the currency market at City Index.