Russian ruble surges after release of American teacher

On Wednesday, the Russian ruble surged to its strongest level against the US dollar in five months following the release of American teacher Marc Fogel. Fogel had been detained in Russia since 2021, and his release raised hopes among investors that it could signal an end to the ongoing war in Ukraine.

Fogel was reportedly arrested and locked up for four years in prison, serving a sentence obtained for holding Marijuana, which is an illegal substance in Russia. 

“I feel like the luckiest man on Earth right now,” Mr Fogel told reporters. “I’m a middle-class school teacher who’s now in a dream world.“

Data from Trading Economics shows the currency strengthened by nearly 3% today, reaching 93.8 to the dollar, a sharp rebound from the 115 per USD rate recorded on January 1st. That low point marked the ruble’s weakest position, excluding the initial selloff after Russia’s invasion of Ukraine. 

The US dollar/ruble exchange rate decreased by 2.75%, closing at 93.8432, compared to 96.4955 in the previous session. The surge is part of a broader rally that has seen the ruble gain 21% against the dollar since the beginning of the year. 

Russia-U.S. diplomacy possibility boosts investor confidence

Analysts believe former President Donald Trump’s return to the White House has profoundly contributed to the Russian currency’s rise. On his first day as US President, Trump promised to end the war in Ukraine, and the US government characterized Fogel’s release as a step in the right direction. 

The White House stated that the release was a signal of potential progress in negotiations with Russia, which could ultimately pave the way for a resolution to the conflict.

Kremlin spokesperson Dmitry Peskov told the Financial Times that the release was the result of intensified talks with the US government, where the two nations agreed to a prisoner-for-prisoner exchange, featuring Marc Fogel and Alexander Vinnik.

According to a New York Post report, Vinnik, whom President Trump agreed to swap with Fogel, is a Russian computer engineer who was arrested in Greece in 2017 on fraud and money laundering charges. He was then extradited to the US, where he was charged and jailed for offering trading services to Americans via his unregistered platform, BTC-e.  

Economists have suggested that the prospect of continued US-Russian negotiations over Ukraine has provided investors with a dose of optimism, and if they fail, the local currency will shed its recent gains.

“If the talks turn out complicated, and this optimism fades, the ruble will have a more difficult time,” said Alexandra Prokopenko, a fellow at the Carnegie Russia Eurasia Center in Berlin.

Central Bank to use rising energy prices in stabilizing the ruble

Rising energy prices have also provided a boost to the ruble. Since early December, Brent crude oil has risen 7%, and natural gas prices have increased even more sharply, further bolstering Russia’s export revenues. 

These gains in energy prices have helped to offset some of the pressures on the currency, which was devastated by the sanctions imposed after the Ukraine invasion.

The ruble had previously fallen to historic lows following Russia’s invasion of Ukraine. In 2022, the currency was hit hard by the combined impact of Western sanctions, which severed Russia from international financial markets. 

With the growing optimism that Russia’s war with Ukraine will end soon, economists predict the ruble’s rebound is due, in part, to seasonal factors, such as lower demand for foreign currency from Russian importers.

Russian financial experts also attribute the ruble’s improvement to increased dollar sales by Russian exporters. According to business newspaper Kommersant, these sales, coupled with the seasonal dip in demand for foreign currency, have helped stabilize the exchange rate. 

Shifting towards the Yuan 

Last week, the Bank of Russia increased its sales of the Chinese renminbi by 17%, its most traded foreign currency, in a bid to stabilize the ruble. The yuan has overtaken the dollar as the most traded foreign currency in Russia, as traders have slowly moved away from the American currency due to sanctions.

In November 2024, the ruble hit its weakest point against the dollar since the invasion began, but since January, it has gained nearly 18% against the greenback. 

In response to US sanctions, Russia suspended trading in dollars and euros on the Moscow Exchange (MOEX) in June last year. The country’s federal bank now sets the official exchange rate based on transactions between banks or between banks and customers, as opposed to traditional currency trading methods.

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