Ukrainian Hryvna

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Ukraine has been hitting the headlines over the last few months, and unfortunately not for the right reasons. We may have got to a turning point as the Ukrainian Parliament repealed emergency, draconian protest laws today which was causing increasing violence amongst the protestors.

The recent protests stem from when the President, Mr Viktor Yanukovich, transferred his proposed allegiance with the European Union instead moving closer to Moscow and the Russian President, Vladimir Putin. The Russians had played a very shrewd game with the Ukrainians by effectively buying their support through a $15bn bond purchase and a reduction of $5bn in their gas price.

The Russians have had influence over Ukraine for many centuries and their grip does not look like it’s going to weaken any time soon. Their energy security is almost entirely at the behest of the Russians. If Moscow wants to turn the taps off. They just can as all pipes and fuel that comes into Ukraine originates from the former Soviet Union.

Ukraine is the second largest country in Europe by landmass with enormous swathes of agricultural land interspersed with heavy industry. Their primary industry is the production of steel and exporting it around the world. As a consequence the fortunes of the Ukrainian economy go “hand in glove” with the fortunes of world demand and world growth.

What does this mean for the Ukrainian Hryvna?

Over the past 12 months the Hryvna (UAH) against the US Dollar has strengthened by around 3.5% from a low of ₴8.09UAH/USD $1 to a high of ₴8.51 UAH/USD $1 in the last couple of weeks. Against Sterling it has strengthened even more, with it up around 15% in the last 12 months. This is a clear reflection of nervousness around the strength of the economy and the fragile political system with funds looking to shelter in stable currencies and economies.

Part of the rationale as to why the USD hasn’t moved more is that we believe that much of the funds held in the Ukraine are not in UAH but in foreign currencies. Primarily USD as this will make it easier for companies and individuals to move funds in and out of the country and provide some level of security when there is so much turmoil in the country.

We can see clearly the effects of the Russian bond purchase on the Hryvna where it has weakened by almost 11% from ₴0.27UAH/1 RUB to ₴0.24UAH/1 RUB. This unfortunately means that their fuel costs have risen by 11% automatically further adding pressure to an already troubled economy.

We believe over the next couple of months that the UAH will strengthen slightly against the USD within the ₴8.45-₴8.55 range against USD$1. Against the Rouble we believe it will remain around ₴0.24UAH/1RUB for the foreseeable future.

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Ukrainian Hryvna

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