Review and forecast of the hryvnia exchange rate against key currencies from KIT Group analysts

Issue No. 1 – December 2024

The purpose of this review is to provide an analysis of the current situation on Ukraine's foreign exchange market and a forecast of the hryvnia exchange rate against key currencies based on up-to-date data. We consider the current conditions, key influencing factors and possible scenarios for how events may develop.

Analysis of the current situation

Ukraine's foreign exchange market is seeing a growing currency shortage caused by high demand in both the cash and non-cash segments. The National Bank of Ukraine stabilizes the market through interventions, which cannot fully satisfy the demand for currency but do achieve the goal of stabilizing the market, preventing abrupt swings and allowing a smooth devaluation trend to be maintained.

Rising demand for currency in both market segments is a typical phenomenon at the start of a month and at the end of a year.

Statements and steps by Ukraine's international partners regarding further financing from frozen Russian assets, infrastructure support and economic stimulus projects give no grounds for pessimistic exchange-rate forecasts.

However, a change in tax policy, in particular an increase in the tax burden on deposit income, could become a new powerful driver of demand for currency and of pressure on the hryvnia exchange rate from the public, as well as of a flow of foreign-currency savings out of the official financial system into cash, while banks are unable to offer attractive rates that would offset the risks of new steps of administrative state intervention in the regulation of foreign-exchange operations for individuals.

A characteristic feature of recent weeks has been the widening spread between the buy and sell rates of the currencies most popular among Ukrainians – the euro and the dollar. This indicates that foreign-exchange market operators want to profit from the increased demand for cash currency among the public, and the larger gap between buy and sell rates allows market operators to offset their own risks amid a poorly predictable exchange-rate situation.

US dollar exchange rate forecast

Short-term forecast

In the near term, the hryvnia exchange rate against the dollar will remain within 41.7–42 UAH/$, with a tendency toward the 42.5 UAH/$ mark. Quotes close to 42 UAH/$ were already recorded in early December, which matches our exchange-rate expectations for the end of this year. At the same time, seasonal factors such as increased demand for currency at the end of the year may cause a slight short-term overshoot, up to the 42.5 UAH/$ mark.

Medium-term forecast

By the end of 2024, the dollar exchange rate could very likely reach 42.2–42.5 UAH/$, given the traditional rise in demand for currency in December. Among external factors, the main one remains the monetary policy of the US central bank, which will affect the dollar's position on the global market, and this will be reflected in the dynamics of the hryvnia exchange rate, which will nevertheless drift smoothly toward the level of 45 UAH/$ on which the 2025 state budget is based.

Euro exchange rate forecast

Short-term forecast

The euro exchange rate on the international market remains under pressure because of expectations of ECB rate cuts. In Ukraine this has been reflected in the stabilization of the hryvnia exchange rate against the euro at 43.6–44.3 UAH/€. Given the absence of local drivers, in the near future the rate will remain within these limits with a potential slight decline.

Medium-term forecast

Over the coming months we assume a probability of a gradual rise in the euro exchange rate to 47–48 UAH/€, driven by a possible easing of ECB monetary policy. However, the strengthening of the euro will also depend largely on the success of the economic recovery of eurozone members and on global trends. It is these that the euro-to-hryvnia dynamics will largely reflect on the Ukrainian market: there are no internal influential fundamental drivers of changes in the euro rate in Ukraine, only situational ones.

Main factors influencing the foreign exchange market

1. Rising demand for currency: at the end of the year, businesses and the public traditionally step up their purchases of currency to settle foreign trade contracts and to preserve their savings. A counterbalancing phenomenon for the market is the significant sale of currency from savings to pay for celebrations and vacations during the Christmas and new year cycle.
2. Relatively stable and predictable inflow of currency: receipts from exporters and assistance from partners and allies make it possible to avoid a currency shortage and to keep the public from panic, which would be the most destructive driver for the exchange rate.
3. Monetary policy of the National Bank of Ukraine: continuation of controlled exchange-rate flexibility and the use of interventions to curb sharp fluctuations: here the situation depends entirely on the will of the National Bank to restrain or not to restrain the hryvnia exchange rate, as well as on the market regulator's readiness to spend foreign-exchange reserves and on their sufficiency.
4. External economic factors: the policy of the US Fed, the economic situation in the eurozone. An additional factor of long-term uncertainty is the probability of trade wars and restrictions against China and the EU announced by the incoming new US administration.
5. Tax changes: raising tax rates on deposit income and on business operations could stimulate demand for cash currency as a result of the growing scale of shadow transactions by households and business entities.

Recommendations for businesses and investors

• Short-term strategies: focus on the liquidity of funds and use fixed-income instruments such as foreign-currency deposits or bonds, keeping in mind that a worsening of the economic situation may prompt the state to introduce restrictions.
• Medium-term investments: maintain a balanced currency portfolio with a predominance of the US dollar owing to its stability in the international economy.
• Alternative assets: if tax pressure grows and you are unwilling to hold savings in risky cash, consider investing in crypto assets as a way to diversify savings and as an additional source of investment income.
• Long-term strategy: keep the predominant share of savings in foreign currency to protect against the consequences of a sustained devaluation trend.

This material was prepared by the company's analysts and reflects their expert, analytical professional judgment. The information presented in this review is purely informational in nature and cannot be regarded as a recommendation for action.

The company and its analysts make no representations and bear no responsibility for any consequences arising from the use of this information. All information is provided “as is,” without any additional guarantees of completeness and without obligations regarding timeliness, updating or supplementing.

Users of this material must assess the risks themselves and make informed decisions based on their own assessment and analysis of the situation from various available sources that they themselves consider sufficiently qualified. Before making any investment decisions, we recommend consulting an independent financial adviser.

BACKGROUND

KIT Group is an international multi-service product FinTech company that has been operating successfully in the non-bank financial services market for 16 years. One of the company's flagship lines of business is currency exchange. KIT Group is one of the largest operators in this segment of Ukraine's financial market, is on the list of the largest taxpayers, and is among the industry leaders in asset growth dynamics and in the size of its own capital.

More than 90 branches in the 16 largest cities of Ukraine are located in places convenient for customers and have modern equipment for the convenience, security and confidentiality of every transaction.

The company's operations comply with the regulatory requirements of the National Bank of Ukraine. KIT Group follows EU operating standards, also has branches in Poland and plans cross-border expansion to European countries.