Issue No. 1 - January 2025

The purpose of this review is to provide an analysis of the current situation on the Ukrainian currency market and a forecast of the hryvnia exchange rate against key currencies based on the latest data. We analyze the current conditions, key influencing factors, and likely scenarios.

Analysis of the current situation

At the beginning of 2025, the Ukrainian currency market is showing relative stability after the seasonal fluctuations that characterized the end of the previous year. The National Bank of Ukraine (NBU) continues to actively support the market with verbal and resource interventions without significant risk to reserves. This helps to prevent sharp exchange rate fluctuations and maintains the confidence of economic entities in the predictability of the national currency.

At the same time, high inflation and devaluation expectations among households and businesses may stimulate increased demand for foreign currency. This may be an additional, most noticeable factor of pressure on the hryvnia. According to NBU surveys, businesses expect moderate inflation and exchange rate growth, which affects investment and development decisions, as well as price planning for goods and services, which may outpace the current exchange rate during the year and have a negative inflationary impact, pushing the devaluation flywheel of negative expectations.

Dollar exchange rate forecast

Short-term outlook

In the short term, the hryvnia exchange rate is expected to remain in the range of 42-43 UAH/$, given the stabilization of the currency after the seasonal increase in demand for the currency at the end of the previous year. Low economic and business activity in January will help to keep the exchange rate stable in the short term. This is evidenced by the spread between the buying and selling rates of the dollar: it remains relatively stable, indicating that supply and demand in the Ukrainian foreign exchange market are balanced.

Medium-term forecast

During the first half of 2025, the likely gradual drift of the hryvnia towards UAH 44/$ is fully consistent with the government's budget forecast for 2025. Avoiding exchange rate extremes during the first half of the year will allow the National Bank and the government's economic bloc to maintain an exchange rate reserve to keep the average annual exchange rate of 45 UAH/$ within the projected parameters for the current year. Controlled devaluation may become one of the tools to fill the budget at the expense of duties and other fees fixed in the currency, including some excise taxes.

Euro exchange rate forecast

Short-term forecast

The euro continues to depreciate against the hryvnia, reaching the levels of 43.25-44.15 UAH/€. Despite the downward trend in the euro, the spread between the buying and selling rates remains relatively stable, which is also evidence of market equilibrium. In the short term, the euro is expected to remain within this range with further gravitating towards UAH 43-44/€, taking into account current trends in international markets and domestic economic factors.

Medium-term outlook

The euro may fluctuate significantly in the coming months, which may be due to potential “exchange rate wars” between the US and the EU, as signaled by representatives of the future administration of US President-elect Donald Trump. They declare that a change in the dollar's parity with the euro is one of the sources of strengthening the US economy.

These verbal interventions, if transformed into real actions, may cause turbulence in the international currency market, which will, of course, be reflected in the exchange rates of key world currencies in Ukraine.

The main factors influencing the foreign exchange market

1. External economic factors. Possible “exchange rate wars” between the US and the EU, as reported by international business media, may affect global currency markets and, accordingly, the hryvnia exchange rate against major currencies.
2. Inflation and devaluation expectations. High expectations among households and businesses stimulate demand for foreign currency, which puts additional pressure on the hryvnia. According to NBU surveys, businesses expect moderate growth in inflation and the exchange rate.
3. Monetary policy of the NBU. The NBU will continue its policy of controlled exchange rate flexibility and use interventions to contain sharp fluctuations.
4. Tax changes. An increase in tax rates on deposit income may stimulate demand for cash, putting additional pressure on the hryvnia exchange rate.
5. Business climate. Reports of massive business closures as a result of increased tax pressure should not be viewed as a clear symptom of a decline in business activity, as this may only be a sign of business shadowing, which may become an additional driver of demand for foreign currency.

Recommendations for businesses and investors

Short-term strategies: focus on maintaining liquidity. Use foreign currency deposits or short-term bonds to preserve capital. A period of increased volatility is an ideal time for experienced investors, while investors without such experience should avoid risky investments.

Medium-term strategies: build a balanced currency portfolio with a predominance of the US dollar, given its stability in the international economy. If you have economic ties with the eurozone countries, their currencies are becoming increasingly attractive for gradual replenishment of savings. The currencies of the EU member states can be a temporary refuge for savings during times of turbulence in international markets. Risk-averse investors should focus on fixed income instruments.

Long-term strategies: Protect your savings from devaluation risks by keeping the bulk of your capital in hard currency or by seeking sources of stable long-term annuities. Consider diversifying into “safe haven” and alternative assets, such as gold or cryptocurrencies.

Risk management: This factor is now coming to the fore. Constantly monitor tax and regulatory changes, which are becoming a key risk factor in the field of legal financial transactions and banking. Avoid excessive accumulation of short- and medium-term assets denominated in hryvnia. Consider geographical diversification of assets and transactions in more regulatory stable jurisdictions.

This material was prepared by the company's analysts and reflects their expert, analytical professional judgment. The information provided in this review is for informational purposes only and should not be construed as a recommendation for action.

The Company and its analysts make no representations and assume no liability for any consequences arising from the use of this information. All information is provided “as is” without any additional warranties of completeness, obligations of timeliness or updates or additions.

Users of this material should make their own risk assessments and informed decisions based on their own evaluation and analysis of the situation from various available sources that they consider to be sufficiently qualified. We recommend that you consult an independent financial advisor before making any investment decisions.

REFERENCE

KYT Group is an international multi-service product FinTech company that has been successfully operating in the non-banking financial services market for 16 years. One of the company's flagship activities is currency exchange. KYT Group is one of the largest operators in this segment of the Ukrainian financial market, is among the largest taxpayers, and is one of the industry leaders in terms of asset growth and equity.

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

The company's activities comply with the regulatory requirements of the NBU. KYT Group adheres to EU standards, having a branch in Poland and planning cross-border expansion to European countries.