Ukraine’s currency touched record lows Monday as continued violence in the rebel-held east fueled pessimism about the country’s economic future.

The currency slump came as the Ukrainian military said it will not pull back its heavy arms from the front lines until attacks by pro-Russian rebels cease completely. Rebel leaders said they have agreed to begin a fuller withdrawal starting Tuesday.

A pullback of heavy weaponry is a key step in a cease-fire deal reached this month, but both sides have said that fighting is continuing, casting doubt on ­efforts to quell the 10-month-old conflict.

[Read: Ukraine pleads for peacekeepers amid fighting]

Fighting between the separatists and Ukraine’s Western-allied government has claimed more than 5,600 lives, according to U.N. estimates. It is the worst bloodshed in Europe since the Balkan wars of the 1990s.

As Kiev accuses rebels of opening rocket and artillery fire on villages in southeast Ukraine, residents in the north burn an effigy of Russian President Vladi­mir Putin. (Reuters)

Amid the violence, the Ukrainian currency, the hryvnia, fell 10 percent against the U.S. dollar Monday before recovering its losses — yet another sign of the nation’s flat-lining economy. The combination of military setbacks and fiscal woes is increasingly threatening the leadership in Kiev, the capital.

Ukraine’s currency has dropped 42 percent this month and is down 69 percent in the year since President Viktor Yanukovych fled office after months of pro-European street demonstrations.

The Ukrainian central bank on Monday announced new measures to stem the losses, imposing limits on the ability of Ukrainian businesses to purchase foreign currency.

“We hope that we will be able to stabilize the situation using these measures,” Valeriya Gontareva, governor of the National Bank of Ukraine, said Monday in Kiev, according to the UNIAN news agency. She vowed to combat the currency crisis, saying that “it destroys the economy and the whole banking system.”

The currency’s nose dive puts even more pressure on government finances, making it harder for the country to buy energy, military hardware and the basics necessary for a war-hit population. It also sends prices of imported goods skyrocketing, meaning that ordinary Ukrainians need to pay far more for their groceries.

The plunge calls into question Ukraine’s ability to repay money borrowed from global creditors. The central bank’s reserves of foreign currency are depleted, raising the prospect that the nation could soon go bankrupt.

Ukrainian military officials said Monday that the ongoing violence means they cannot pull back their weaponry.

Members of the Ukrainian armed forces are seen near Artemivsk, eastern Ukraine, on Feb. 23. (Gleb Garanich/Reuters)

Lt. Col. Anatoliy Stelmakh told reporters in Kiev that although attacks on Ukrainian military positions had “significantly decreased,” there were two artillery attacks overnight. “As long as firing on Ukrainian military positions continues, it’s not possible to talk about a pullback,” he said.

Under the internationally brokered peace deal reached in Minsk, Belarus, two weeks ago, both sides are to withdraw their heavy weapons from the front lines to create a buffer zone. Ukrainian officials had said Sunday that they were planning to begin the pullback.

Rebel leaders, meanwhile, said they were planning a fuller withdrawal Tuesday. Both sides have repeatedly said they would start pulling their weapons from the front lines, only to renege later. Last week, government forces were dealt a major defeat when they were forced to retreat from the strategic railway hub of Debaltseve. The violence came after the cease-fire was supposed to have gone into effect Feb. 15.

The setbacks have even Ukrainian President Petro Poroshenko’s allies questioning the government’s strategy and military planning.

Germany, the primary Western driver of the cease-fire deal, said Monday that it was losing hope for the prospects of the peace plan.

“It is clear the implementation of the measures is not satisfactory,” Steffen Seibert, a spokesman for German Chancellor Angela Merkel, told reporters in Berlin. “What is decisive is a comprehensive cease-fire. It is worrying for the German government that we haven’t yet seen anything like this.”

The currency plunge came a day after a bombing at a pro-Ukrainian rally in the government-controlled city of Kharkiv that killed two people. A third victim, a 15-year-old boy, died Monday of wounds suffered at the rally, city authorities said. A spate of attacks in Ukrainian-held cities has sparked fears even in areas far from the harshest fighting in the east.

Daniela Deane in London contributed to this report.