Ruble Erases Invasion Loss Even as Default Risk, Sanctions Swirl

(Bloomberg) -- The Russian ruble has wiped out the steep losses it incurred in the weeks after President Vladimir Putin sent troops into Ukraine.

The currency on Wednesday advanced past 81.16 per U.S. dollar in Moscow trading, the level it closed at on Feb. 23 -- the day before Putin launched his attack. It's a recovery that comes at an ironic moment, as sweeping sanctions cripple Russia's economy and send the government teetering on the edge of default.

The ruble strengthened for an 11th session in 13 on Wednesday despite signs of further pressure, with the dollar-ruble pair dropping as much as 5% to 79.11 in local trading, before ending at 79.70. The European Union and the U.S. are coordinating a new raft of financial sanctions against Russia, while the Finance Ministry said its attempt to service debt in dollars had been blocked, potentially moving the country closer to its first external default in about a century.

The ruble went into a nosedive immediately after the invasion on Feb. 24 amid international sanctions that effectively ended its time as a freely traded currency. But tough capital controls -- including a ban on foreigners selling Russian assets as well as mandated hard currency sales by exporters -- have helped the ruble regain ground.

Putin has also demanded that overseas buyers of Russian natural gas switch to making payments in the local currency. For now, though, Russia may be continuing to benefit from cash inflows as it sells natural gas and oil at high prices.

U.S. Treasury Secretary Janet Yellen, testifying at a Congressional committee hearing, on Wednesday said that people shouldn't draw any deeper message from the ruble's rebound, underscoring that the country has capital controls in place and saying that the market for rubles isn't free.

The onshore rate came close to 122 per dollar in early March, a more than 30% collapse from the level before the attack. While offshore price sources at various points indicated even weaker levels, liquidity was severely hampered.