The Russian economy is experiencing a downturn for the first time since sanctions were imposed. Economic indicators like manufacturing and services PMIs have dropped below 50, suggesting contraction.
The International Monetary Fund has revised GDP growth projections to less than 1% for the coming year, while oil and gas revenue is declining, impacting the fiscal deficit. The Central Bank of Russia has started cutting interest rates, which may lead to a weaker exchange rate.
Currency Trends
The USD/RUB and EUR/RUB rates are expected to trend upwards steadily. This information involves risks and should be approached with caution. Thorough research is advised before making any investment decisions.
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Based on the current economic signals, we see a clear case for a weakening Russian ruble in the coming weeks. The latest S&P Global data for July 2025 showed manufacturing and services PMIs dipping to 48.2 and 47.9, respectively. This marks the first sustained contraction since the initial shock of sanctions back in 2022.
Exchange Rates and Policy Shifts
The pressure on the currency is intensifying due to falling energy revenues, a core pillar of the Russian budget. The Ministry of Finance reported a 22% year-over-year drop in oil and gas income for the first seven months of 2025. This decline is widening the fiscal deficit, putting more pressure on the government to allow for a weaker ruble to boost the local value of its exports.
The Central Bank of Russia’s recent policy shift further supports this outlook. Its 50-basis-point rate cut on July 28, 2025, to 7.0% signals a pivot towards stimulating the economy rather than defending the currency. For derivative traders, lower interest rates make holding long positions in the ruble less attractive due to a reduced yield differential.
We are now in a different environment than in 2023 and early 2024, when capital controls and high energy prices artificially strengthened the ruble. Looking back, betting against the currency was a difficult trade during that period. The current economic data suggests those supports are eroding, making a bearish stance on the ruble more fundamentally sound.
In response, we believe traders should consider long positions in USD/RUB or EUR/RUB currency pairs using derivatives like forwards or call options. With the USD/RUB rate already pushing past the 95 mark, targeting the 98-100 range by late Q3 2025 appears viable. Using options can help manage risk by defining the maximum potential loss on the trade.
