The Russian rouble (RUB) recovered slightly even as the European Union (EU) and United States (US) responded to Crimea's secession efforts with sanctions on certain individuals from Ukraine and Russia.
The market's reaction suggests that the West's response so far was a light reprimand compared to the harsher economic sanctions that investors had feared.
EU foreign ministers have agreed to impose sanctions including travel bans and asset freezes on 21 officials from Russia and Ukraine. Lithuania Foreign Minister Linas Linkevicius has indicated that more measures would follow. Separately, US President Barack Obama announced that he ordered sanctions against 11 Russian and Ukrainian officials.
The sanctions were announced as the Parliament of Crimea moved forward with plans to join Russia after an overwhelming majority of Crimean voters decided to split from Ukraine in a referendum over the weekend.
The Russian rouble opened the week slightly lower against the US dollar
and dipped to a low of 36.70 but recovered to 36.25 during the US trading session. Also, Russia's MICEX stock index closed the session around 4% higher as no reports surfaced of fresh violence or an escalation of the conflict.
Analysts had been expecting a more severe reaction by markets after the West threatened with harsh economic sanctions if Russia did not let up in its efforts to annex Crimea.
Meanwhile, Crimean legislators have already stated that the laws of Ukraine no longer applied, that Ukranian authorities had no power in Crimea, and appealed to Russian to accept Crimea. They claimed that "The Council of the Autonomous Republic of Crimea" has been renamed to the "State Council of the Republic of Crimea".
According to Craig Erlam, Market Analyst for Alpari UK: "It is the response from the West that the markets are concerned about, as this is what could escalate things very quickly, should it prompt a retaliation from Vladimir Putin."
Crimea's new Prime Minister Sergei Aksyonov told Russian state television that a delegation from the region would arrive in Moscow to discuss annexation.
Additionally, there is speculation that Russian President Vladimir V. Putin will deliver an address to lawmakers concerning the annexation of Crimea on Tuesday.
"We are in wait-and-see mode to see what sanctions there could be; if the sanctions are stringent on banks, then capital outflows could accelerate," said UBS Emerging Market Strategist Manik Narain. "But Russian markets seem to be taking the view sanctions won't be as punitive as originally feared."
For now, the USD/RUB is showing a slight uptrend on the hourly chart. The currency pair is not far off the record-high of 36.96, set at the beginning of the month, despite measures taken by the Russian central bank to keep the rouble from falling.
Part of the rouble's gains on Monday could be a result of repatriation-related flows as companies in Russia position for potential liquidity squeeze in case of harsh sanctions.
On the other hand, Capital Economics estimates that net private sector outflows of capital from Russia "have totalled $50bn since the start of the year - equivalent to 2.5% of GDP. What's more, if the current pace of capital flight continues over the coming weeks, net outflows are on course to total $70bn (3.2% of GDP) over the first quarter as a whole. There is a real risk that this could push Russia into recession this year."