Unpredictable exchange rate. What to happen to currency in Ukraine in February

Author

Vadym Makeiev

The dollar in January in Ukraine added 1.5 UAH. Experts say that there is more to come, since there are few prerequisites for the strengthening of the hryvnia in February 2022. At the same time, one should not give in to panic and buy the currency at the extreme increase.

The national currency proved in January that the exchange rate is primarily a political value rather than an economic one. During the month, the hryvnia exchange rate against the dollar added more than 5.5% (1.5 UAH)—from 27.3 UAH to 28.8 UAH, while the maximum values were at the level of almost 29 UAH.

The main reason for the hryvnia collapse was the tense geopolitical situation, the experts believe. The risk of a military escalation in Donbas and a wider military conflict with the Russian Federation is driving investors out of the country. "In January, we witnessed an outflow of the non-residents’ and local investors’ capital. Over the 26 days of January, the portfolio of non-residents in domestic government loan bonds (OVDPs) decreased by 9.1 billion UAH, and there were panic sales on some days. The news background is tight, and that keeps the players up, strengthening or weakening the pressure. In addition, there were large-scale sales of Ukraine's foreign currency debt. The yield on ten-year Ukrainian Eurobonds exceeded 10.8%, and Eurobonds maturing in September 2022 showed a yield of more than 26%," Andriy Shevchyshyn, Head of Forex Club analytics department, explains.

Note that on the last day of January, the hryvnia strengthened somewhat.

You can get up-to-date information on the value of the dollar here.

Dollar exchange rate forecast in February 2022

In February, the geopolitical situation and troops on the border with Ukraine will remain the main factor determining the exchange rate of the hryvnia against the dollar. If the tensions in the information space decrease at least slightly, the market may well come to a quotation correction. But, otherwise, they will continue to grow, the experts believe. In addition, the negative factors affecting the hryvnia exchange rate in February include:

the non-residents’ capital outflow. The threat of war with Russia forces non-residents to withdraw funds from Ukraine. Foreigners sell OVDPs and buy foreign currency for the hryvnia proceeds;
the energy crisis. Energy traders and gas purchases are expected to become active in February. This refers to purchasing 600 million to 2 billion cubic meters of gas that at current prices is equivalent to $600 million—$2 billion. Such a demand level for the currency will continue to weaken the hryvnia, even if the outflow of capital comes to a stop;
the seasonal decline in the export earnings of agrarians and no need for hryvnia on their part, since there are still about two months before the new agricultural season. The sale of the foreign currency on the interbank market by the agrarians will begin towards the end of February—early March.
the risks of the spread of coronavirus and its new stamps that may again result in partial or complete closure of countries and economies.

Among the deterrents to the national currency devaluation, it is worth noting the increase in the NBU discount rate from 9% to 10%.

"The exchange rate predicting or modeling in case of hostilities is an almost unrealistic task. But if the situation during February remains the same as at the end of January, the hryvnia will continue to devalue. The NBU will continue to sell foreign currency on the interbank market, but the regulator does not have much currency in its portfolio. Given that since the beginning of the year, the NBU has already sold more than $1 billion on the interbank market, the regulator has about $1.5–2 billion of real resources to sustain the hryvnia exchange rate. With average intervention amounts of about $300-400 million per week, this may be enough until the end of February. Accordingly, we should expect the hryvnia exchange rate in the range of 29-30 UAH per dollar, if the situation at the border does not heat up. In case of the Russian troops withdrawal from the borders with Ukraine, we can expect a significant strengthening of the hryvnia to 27–28 UAH per dollar," Yurii Netesanyi, the Managing Partner at Atlant-Finance, sums up.

The Forex Club group considers two basic scenarios. At the current geopolitical tensions and the possible escalation of the military conflict with the Russian Federation, the dollar exchange rate may reach 31.5 per dollar UAH. The second scenario: there is a detente that will allow the exchange rate to establish itself in the range of 28.5–29.5 UAH per dollar.

Forecast of the euro and ruble exchange rates in January

According to Netesanyi's forecasts, the Russian ruble exchange rate in February should be expected in the range of 0.365–0.375 UAH per ruble. At the same time, much will depend on the geopolitical situation. The Central Bank of Russia also suspended purchasing foreign currency on the interbank market to sustain the ruble exchange rate, and foreign investors also began to withdraw from the Russian assets.

"So far, the euro is trading at $1.12. During January, we expect the euro to be in a wide range of 1.11–1.14, and in a narrow range, where the currency will stay for a long time, $1.12–1.13 per euro. In relation to the hryvnia, we expect the euro to be in a narrow band of 32.0–33.5 per euro UAH, if the geopolitical situation does not change," Netesanyi explains.

Is it worth buying currency

Amid emotional and irrational currency purchases, any movements and exchange rates can be expected. Therefore, in matters of buying currency, the experts advise to proceed from one’s own psychological beliefs. Those who expect the conflict to escalate can buy currency to calm down. The Vice President of the Association of Ukrainian Banks Halyna Kheilo advises to make small savings and not to buy currency at the extreme increase in the rate.

And those who are confident in a peaceful settling of the situation should not buy, but sell the dollar. A good rate for selling can be a rate above 30 UAH per dollar, Netesanyi says.