After reports of Russian troop movements near Ukraine and new sanctions introduced by the West, the Russian rouble dropped 0.4%, reducing the rise reached earlier, after jumping 1.8% the day before.
It was reported on Monday that Russian President Vladimir Putin recognized the territories of the DNR and LNR as independent. As a result, Western worries about war in Europe grew, predicting the probability of invasion beyond the seceded territories.
The U.S., European Union, Britain, Australia, Canada and Japan responded with anti-bank and elite plans, while Germany paused a huge gas pipeline project from Russia.
"Economic sanctions would affect energy supplies, at a time of already severe tension in oil and gas prices, and while diplomats remain at work, it is undeniable that tensions over Ukraine represent an additional element of volatility and downside risk for the economy and financial markets," said Filippo Casagrande, head of insurance investment solutions at Generali Asset & Wealth Management.
Nevertheless, the early launch of the monetary tightening cycle in some developing countries and rising commodity prices made foreign investors turn their eyes to currencies and stocks in emerging markets.
MSCI's index of emerging market stocks added 0.3% on Wednesday and its currency counterpart gained 0.2%.
Emerging market currencies are up about 0.9% this year, compared with a nearly 10% drop in the underlying Wall Street S&P 500 Index in 2022.
"Many emerging markets have already faced very aggressive rate hike cycles by their central banks in recent months and quarters. This weighed heavily on performance seen in 2021, but now represents a relative strength," Casagrande said.