Russia FX Beat - December 7, 2017

> Today's focus. UK political trouble. Ruble interventions double.
> Global trigger: UK Brexit woe. Global markets stabilized overnight, with Asian stocks steadying after recent losses. In FX markets, the DXY gained for a fourth straight day yesterday, while EUR/USD extended its decline to five days.
Overall, it is a quiet period for market-relevant news flow. This will continue today before picking up tomorrow with the release of US jobs data. A flurry comes next week with rate decisions from the Fed, ECB and BoE.
Attention in Europe today will likely fall on the UK, where PM May has struggled to progress Brexit negotiations this week. The issue is very complex, but the current stumbling block is the Irish border. The bigger picture is that the UK is set to miss a deadline and fail to advance to talks at a summit next week. An already-weak May is also facing pressure at home. Downside risks for the pound are building, and it would not be a surprise to see GBP/USD head to 1.33 or below near-term.
> Bottom line. The pound has become more volatile and more vulnerable. EUR/USD could ease further below 1.18.
> Regional trigger: FX interventions more than double today. The dollar's rally in recent days has been clearly visible in the ruble exchange rate. Over the last five days, the ruble fell 1.5% against the dollar, the biggest decline of the currencies we follow. The fact that Brent is down 5% from its recent high is not helping. The decline in oil prices is due to profit taking following the OPEC+ output cut extension last week and the broadly stronger dollar.
We think sentiment toward the currency has soured after the Finance Ministry's announcement on Tuesday that it would buy $3.5 bln of FX this month, though the immediate reaction was muted. Starting today, daily interventions more than double from $100 mln to $215 mln.
In other news yesterday, President Putin announced his candidacy for the March 2018 election. Also, the CPI rose 0.1% in the week ending December 4. With the blackout period starting tomorrow, time is running out for the CBR to provide guidance on what moves it is weighing for next week's meeting.
> Bottom line. The ruble is under pressure due to the strong dollar and falling oil prices. With FX intervention more than doubling today, USD/RUB might rise further, toward 59.50.