Investing.com - The Russian rouble fell to fresh record lows against the dollar on Monday as escalating tensions over the conflict in Ukraine pressured the currency lower.
USD/RUB hit highs of 37.50 and was last up 1.07% to 37.44 from 37.05 late Friday.
Investors were continuing to monitor the situation in Ukraine ahead of negotiations between Ukrainian and Russian officials and pro-Russian separatists after talks last week resulted in no major breakthrough.
Earlier Monday, Ukrainian troops lost ground around the eastern city of Luhansk following overnight clashes with pro-Russian rebels.
The conflict broke out in March after Russia's annexation of Ukraine's Crimea region.
Ukraine and the West blame Russian military support for the separatist’s gains in eastern Ukraine, claiming that Russian troops have entered the conflict to support them.
Over the weekend European Union leaders threatened to impose a new round of sanctions on Russia if Moscow does not end its support for the rebels.
The rouble also fell to record lows against the euro, with EUR/RUB touching highs of 49.29 before retracing some of those gains to trade at 49.06.
The euro’s gains were held in check amid mounting expectations for quantitative easing by the European Central Bank after data last week showed that the annual rate of inflation in the euro zone slowed to a five year low of 0.3% last month.
The ECB targets an inflation rate of close to but just under 2%.
Concerns that sanctions against Russia would act as a drag on growth in the euro zone have also weighed on the single currency in recent weeks.
Data on Monday confirmed that Germany’s economy contracted by 0.2% in the second quarter, in line with forecasts and unchanged from a preliminary estimate.
Separate reports showed that Germany’s manufacturing sector expanded at the slowest pace in 11 months in July, while factory activity in France contracted at the quickest pace in 13 months, adding to the view that the recovery in the region is losing momentum.