Unwanted dollars: How and why the exchange rate shifted towards the strengthening of the hryvnia.
January Demand: What Happened in the Currency Market Throughout the Month
The end of 2024 and the first weeks of 2025 were marked by a noticeable increase in demand for foreign currency from all economic agents. This was anticipated, given the concentrated and increased budget expenditures in December, and trading volumes on the interbank market rose. Anna Zolotko, director of treasury operations at Unex Bank, shared this information.
"There was additional pressure on the exchange rate from the population as well—devaluation expectations remain high, prompting many Ukrainians to rush to convert their December incomes into foreign currency. The National Bank, adhering to its adopted strategy, intensified its presence in the market, as evidenced by significant weekly interventions by the regulator. In the last three weeks of December and the first two weeks of January, the volume of interventions by the NBU exceeded $1 billion. Despite this, a significant imbalance in the market pushed the exchange rate upward. At its peak on the interbank market, the value of the US dollar reached 42.42 UAH/USD, while the cash rate even crossed the psychological mark of 43 UAH/USD.", — the expert explains.
In her opinion, the planned inauguration of Donald Trump on January 20 had some influence on currency trends in January. However, seasonal factors primarily shaped the trends in the currency market, says Anna Zolotko.
Taras Lesovoy, head of the treasury department at Globus Bank, explained: The National Bank could not leave the market to its own devices amid rising consumer prices, and the regime of "managed flexibility" in the currency market remains in effect. And thanks to timely measures, the NBU was able to saturate demand as much as possible, balancing it with supply. Current exchange rate fluctuations occurred within quite familiar limits, meaning there were no rapid changes in the market.
0 "Unlike December, when a large mass of hryvnias enters the market at the end of the year (for example, annual bonuses, dividends, which citizens try to invest either by placing them in deposits or by buying currency), January typically does not exhibit excessive activity. Therefore, the beginning of January was more 'inertial' than trend-based," — believes Taras Lesovoy.
The Hryvnia Strengthened: What to Expect from Exchange Rate Fluctuations in February 2025
In February, fluctuations in the exchange rate, and quite significant ones, are possible, but overall, the NBU will maintain a controlled situation, experts say.
Regarding the situation in the cash market, according to the expert, at the beginning of 2025, the spread between the interbank and cash rates expanded to 50-70 kopecks, and now it has returned and narrowed to 30-40 kopecks. "As soon as the market stopped rising, we returned to a narrower spread between cash rates and the interbank market", — noted Anton Kurinnyi.
1 Anna Zolotko adds: the cash market experienced a similar wave of demand growth compared to the interbank market at the end of last year and the beginning of this year. "Against the backdrop of increased demand, the price of the US dollar sometimes reached 43 UAH/dollar. However, as soon as the demand subsided, the hryvnia began to strengthen rapidly. On Wednesday, January 22, the cash dollar was offered in the range of 42.3-42.5 UAH/USD," — says Anna Zolotko.
Moving forward, in the next month, experts predict mixed exchange rate fluctuations. This means that both a depreciation of the hryvnia and a strengthening can be expected.
"We believe the market will remain within a corridor of 41.90/42.40 UAH/USD for some time. In February, at the beginning of the month, we expect additional sales due to monthly taxes and salaries/social payments, followed by a potential rise. By the 20th, quarterly taxes will be paid, and we anticipate a stable hryvnia during this period with a strengthening of the national currency; then, possibly, we will observe additional demand again. And, of course, we are monitoring news from abroad from our international partners," — noted Anton Kurinnyi.
2 According to Anna Zolotko, the regulator will make efforts to maintain exchange rate stability. Fluctuations, and quite significant ones, are possible, but overall, the NBU will keep the situation under control. "I believe that over the next 4-5 weeks, quotes on the interbank market will remain in the corridor of 42.0-42.6 UAH/dollar", — says Anna Zolotko.
Taras Lesovoy listed the factors that will influence the currency market situation in February:
- Effective measures by the NBU to balance supply and demand (referring to the mechanism of currency interventions and its effective application when necessary);
- Monetary policy—the level of the discount rate, which affects the strength of the hryvnia;
- Domestic "economics": dynamics of consumer prices, development of key sectors, and so on;
- A number of foreign policy factors: from US policies regarding military-technical assistance and the cessation of war, the volume of financial aid received, and so on;
- World prices for key goods exported by Ukraine;
- The situation at the front and the overall consequences of the war.
"The situation in the market will depend on how these factors can fit together in a 'puzzle.' However, we expect that the actions of the regulator will remain effective and aimed at balancing supply and demand, avoiding panic, and countering potential negative influences. This is why we can expect that the main fluctuations will closely resemble those of January, with the official exchange rate remaining in the range of 42-42.4 UAH/USD", — emphasized Taras Lesovoy.