The Russian rouble slid on Wednesday after Western sanctions imposed on Russia over its invasion of Ukraine wreaked havoc on its financial system, while surging oil prices exacerbated concerns of stagflation in the global economy.
Moscow was poised for an advance on Kyiv as it continued to bombard Ukrainian cities. US President Joe Biden announced more sanctions on Moscow, joining the European Union and Canada in banning Russian planes from US airspace.
The rouble in Moscow trade was 7.8% weaker at 109.10 against the dollar as of 0931 GMT, while the currency fell 3.4% on the interbank rate. The divergence in both rates point to how dysfunctional financial markets have become in Russia.
"The introduction of sanctions against many Russian banks has seen bifurcation emerge in the rouble FX spot market," FX analysts at ING wrote in a client note, warning this two-tier market would continue and European currencies would remain under pressure.
Oil prices spiked to trade over $100 a barrel, with Brent crude futures touching their highest since June 2014, further denting global risk sentiment.
Energy importing economies such as Turkey, India and emerging markets in Europe will likely suffer the consequences of sky-high oil prices as inflation also remains high.
"It will exacerbate the stagflation concerns that the global economy could be facing," said Jakob Christensen, head of global macro and EM research at Danske Bank. The lira slipped 1.3% against the dollar. "For Turkey, this exacerbates the inflation issue, so I am closely watching the Turkish lira, which has been rather stable, but this shock is not good news to the Turkish government in containing the issue," Christensen added.
The Indian rupee fell 0.6% to lead declines among Asian currencies. Stocks in the NSE benchmark Nifty fell 1.8% after data showed the country's economy expanded 5.4% in the October-December quarter below economists' forecast of 6% growth.
South Africa's rand slipped 0.8%, its third consecutive day in the red, as the currency struggles to make significant gains amid Russia's intensifying bombardment of Ukraine.
Russia's biggest lender Sberbank's European arm was closed by order of the European Central Bank, which had warned it faced failure due to a run on deposits after the country's invasion of Ukraine.
The MSCI's index for emerging market equities fell 0.8%, while its currencies counterpart weakened 0.3%. Russia's equity markets were closed on Wednesday.
In what are likely to be his final public remarks on monetary policy ahead of the expected US interest rate hike later this month, Federal Reserve chief Jerome Powell will testify before Congress on Wednesday and Thursday.