In 2024, the hryvnia exchange rate was under pressure from a number of challenges. However, their effects were controlled due to a number of stabilizing factors. In 2025, the hryvnia will be under significant devaluation pressure, but there are no reasons to be pessimistic about the relative stability and predictability of its exchange rate.

The main driver of the hryvnia exchange rate against the euro and the dollar in 2025 will be the situation on the international currency markets and the policies of the US and EU regulators, while the Ukrainian economic authorities and the National Bank have already developed an effective package of tools to prevent volatility in the national currency.

What influenced the hryvnia exchange rate in 2024

There were two main factors that determined the exchange rate dynamics. On the one hand, a steady inflow of foreign exchange earnings from exporters and international aid from partners and allies helped keep the market in relative balance without a significant shortage of currency. On the other hand, high demand for foreign currency at the end of the year, driven by business payments under foreign trade contracts and pessimistic economic and exchange rate expectations of households, created moderate depreciation pressure. However, despite this challenge, the economic authorities and the NBU managed to ensure that the exchange rate was effectively managed without any disruptive consequences.

The NBU's market and administrative measures, including foreign exchange interventions, played an important role in maintaining stability, while reserves remained at a sufficient level, amounting to $40.8 billion at the end of the year.

Forecast for early 2025

As we predicted, by the end of 2024, the hryvnia will have gradually devalued to the level of UAH 42.2-42.5/$.

The outlook for early 2025 depends on macroeconomic factors, in particular on the further dynamics of international support, the US Federal Reserve's monetary policy in connection with the new administration, and exchange rate parity in the international markets of the two key reserve currencies, the dollar and the euro. If the financial support from partners and allies is stable and the volatility of foreign markets is low, the hryvnia exchange rate will be relatively predictable, although it will continue to be on a devaluation track.

The most likely annual scenario is the option close to the government's forecast, which is reflected in the state budget for 2024 (average annual exchange rate of 45 UAH/$). This indicator allows for fluctuations throughout the year in the range of 44-46 UAH/$, with a tendency to a higher level by the end of the year. So far, we have no reason to underestimate the risks of further long-term devaluation.

Impact of record demand for foreign currency on the market

The record demand for foreign currency was observed at the end of the year, when business settlements under external contracts traditionally intensify, and demand for cash among households grows.

However, throughout 2024, the spread between the buy and sell rates remained mostly insignificant and stable, a clear indication of the market's balance and relative predictability. Only in December did the spread between the buying and selling rates of the dollar reach UAH 0.8-1, and this state of affairs may persist in early 2025. However, this does not indicate an increase in pressure on the market, but rather the desire of FX market operators to minimize their own currency risks and capitalize on short-term seasonal peak demand.

Thanks to the importation of record amounts of cash and foreign exchange interventions by the banking regulator, the hryvnia exchange rate was kept relatively stable without abnormal volatility, and thus panic among both households and businesses was avoided.

In 2025, an important factor in shaping the demand for foreign currency will be an increase in the tax burden on deposit income: if banks are unable to offset the decline in deposit yields with interesting offers, there is a high probability that demand for foreign currency will increase due to the flow of savings and free hryvnia liquidity into foreign currency cash outside banks, which could also become a powerful factor of pressure on the exchange rate.

Another driver of currency demand growth is the increased administrative and regulatory pressure on businesses and the control and restrictions on banking transactions of individuals. The excessiveness of these measures will push money circulation into the shadow, where foreign currency dominates.

The role of record volumes of cash imports

In 2024, banks imported record volumes of cash foreign currency, which became one of the key stabilizing factors. The supply of dollars and euros, especially in the last quarter, ensured stability even during periods of peak demand.

This measure helped to avoid a shortage of foreign currency, minimize the risks of speculation, and maintain public confidence in the market. As a result, the hryvnia exchange rate remained relatively stable even in times of high demand. In 2025, provided there are no logistical barriers, foreign currency importers may continue to supply the required amount of foreign currency in cash, which will also support the stability of the FX market.