Business news from Ukraine

Issue No. 1 for November 2024

The global currency market was shaken by Donald Trump’s victory in the US presidential election, which created a wave of expectations and uncertainty.

The real balance of power will become clearer only after the first practical steps of the new administration, which will indicate the key vectors of the US economy, determine their global influence on allied countries and blocs, and show the policy of influencing the US global competitors outside the Western world.

Currently, there are no fundamental economic reasons for significant exchange rate corrections, and what we are seeing in the global context in the currency and cryptoasset markets is more like “fussing on deck waiting for the weather to change,” although there is no clear forecast or signs of change, everything is based on more or less probable assumptions, expectations, and faith.

Now is not the best time to formulate medium-term currency strategies. However, if you have developed speculative skills and a taste for risk, you can make money from speculation in a period of high uncertainty in the currency markets.

Meanwhile, Ukraine is experiencing record demand for foreign currency, which is also driven more by global processes and the far from optimistic expectations of households and businesses. The real need for foreign currency can only exist and grow in the shadow sector, where some business operations are moved in the face of economic and tax uncertainty, infrastructure and economic risks. However, the real needs for foreign currency for import-oriented sectors are within normal limits.

Thus, Ukraine’s FX market remains under pressure from psychological factors, although fundamental macroeconomic indicators do not yet provide grounds for strong devaluation pressure and abrupt exchange rate movements. The only certainty is that we will see further gradual devaluation of the hryvnia, at least in the current security and economic environment.

The combination of these factors is pushing citizens to transfer their savings into foreign currency instruments, and many are focused on cryptocurrencies.

Dollar exchange rate forecast

As we predicted earlier, the US dollar exchange rate remained relatively stable in November with minor fluctuations. The average buying rate fluctuated between 41.20 and 41.35 UAH/$, and the selling rate between 41.65 and 41.75 UAH/$. The official NBU exchange rate remained at UAH 41.20-41.35/$ amid no significant interventions by the regulator.

The spread between the bid and ask rates remained stable at UAH 0.40-0.50/$, reflecting the fragile economic equilibrium and the balance between supply and demand.

Outlook:

• Short-term: We expect the hryvnia exchange rate to remain stable in the range of UAH 41-42/$ by the end of the month, if the current macroeconomic, security, and infrastructure conditions continue.
• Medium-term: by the end of 2024, the hryvnia may gradually weaken to UAH 43/$, driven by seasonal demand for the currency, if the effective demand of households and businesses for it is not exhausted by then.
• Long-term: the average annual exchange rate for 2025 of UAH 45/$ included in the budget forecast assumes fluctuations in the range of UAH 44-46/$ and still looks realistic.

Euro exchange rate forecast

As expected, the euro continues to show a steady downward trend after reaching peak levels of 46.18-45.6 UAH/€ in October. In the second decade of November, the average euro exchange rate corrected from 45.25-44.67 UAH/€ to 44.65-44.1 UAH/€.

The downward spread between buying and selling euros remained relatively flat at UAH 0.55-0.65/€, indicating that FX market operators are trying to keep an additional premium on the increased demand for the euro, while the purchase of euros from households and businesses is closer to the official NBU rate, the unwillingness of FX market operators to take on currency risk in the event of a reverse “rebound” in the euro, which may be due to new signals from key players in the global economic system.

Forecast:

• Short-term: We see the most likely continuation of the downtrend until the end of November with fluctuations in the range of 44-45 UAH/€ , although there is a certain probability of further smooth decline. Those who bought the euro in August of this year may soon find themselves in the zone of exchange rate losses if this trend continues. Euros purchased in earlier periods still provide exchange rate income to their owners.
• Medium-term: The euro is most likely to appreciate over the next six months, but specific values will be difficult to predict, given the trade, monetary, interest rate, and other steps taken on both sides of the Atlantic to find and establish a strategic exchange rate balance between the US and EU currencies.
• Longer-term: The euro will remain sensitive to ECB monetary decisions and may be under pressure from the economic and trade policies of the new president’s administration. However, there is a possibility that the European bloc’s currency will gradually strengthen against the dollar as the European economy stabilizes.

Future factors influencing the Ukrainian currency market

The key ones still dominate:

Negative:

• Changes in tax policy, in particular, an increase in tax rates for deposit income, which may stimulate the transfer of savings into cash or crypto assets.
• Potential shadowing or temporary closure of businesses due to higher tax rates or acute infrastructure or security challenges, which could increase demand for currency in all market segments.

Positives:

• A balance between supply and demand without significant distortions and the ability to meet the demand for currency from all economic entities without creating a shortage of currency in any of the market segments.
• Sufficient and predictable financial support from international partners and allies at this stage.
• The ability and determination of partners to positively influence the security situation in the country by providing assistance.

Recommendations on currency transactions

• Speculation: we advise you to refrain from short-term purchases of the dollar, while the euro can be considered as a tool for generating additional exchange rate income, provided that it is purchased on favorable terms against the background of a depreciation.
• Savings: the dollar and euro remain the main currencies for savings, which can be formed in any of the currencies available for purchase, taking into account the goals and horizon of future expenses.
• Hedging tools to protect against possible exchange rate fluctuations, advance planning of currency reserves and their structure to prepare for a likely increase in demand in the winter period are becoming particularly relevantfor businesses .
• For any investors with a minimal risk appetite , passive income from short- and medium-term investments in fixed income instruments, such as foreign currency bonds or foreign currency deposits, is a good option.
• Thegeneral recommendation is to maintain maximum liquidity of the portfolio of reserves, investments and savings to enable prompt adjustment of strategies as new strategic guidelines emerge.

This material was prepared by the company’s analysts and reflects their expert, analytical professional judgment. The information presented in this review is for informational purposes only and cannot be considered 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 guarantees 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 assessment 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

KIT 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. CIT 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. CIT Group adheres to EU standards, having a branch in Poland and planning cross-border expansion to European countries.

Source: https://interfax.com.ua/news/projects/1028818.html