Daily Insight -- Hryvnia retreats
Over the last several weeks, the hryvnia was supported by a weak US dollar and second quarter tax payments which caused a significant appreciation of the Ukrainian currency. However, on Wednesday the hryvnia dropped 0.4% to 25.5456 USD/UAH due to some correction in USD/UAH as the US dollar stabilized and domestic tax payments concluded. In addition, liquidity in the banking sector increased as bank reserves added UAH3.97bn up to UAH48.09bn. The UAH sold for 25.36 USD/UAH versus 25.57 to buy in the Ukrainian cash market. The hryvnia's CPI-based real trade-weighted index fell 0.57% to 109.37; in year-on-year terms, it is up 11.62% from 97.99 last year. In our view, the hryvnia will remain near 25.6 USD/UAH in the beginning of the week as the August tax payments start on Monday. However, the hryvnia's CPI-based real trade-weighted index shows that the Ukrainian currency is overvalued, thus we expect the UAH to depreciate in the mid-term.
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