Why the hryvnia is weakening and why this is not a collapse

The beginning of January brought numbers to Ukraine’s currency market that are psychologically hard to accept. The hryvnia updated its historical low nearly 43 per dollar and over 50 per euro. For many, this looks like an alarming signal, but if you look deeper, without emotions and headlines, the picture is much more complex and, importantly, controlled. The first thing to fix is this: we are not talking about a sharp collapse, but about a gradual exchange-rate correction. The hryvnia is weakening not in one jump, but over several days, in small steps. Such dynamics are typical of a market where demand exceeds supply, but without panic or loss of control. That is why the National Bank does not speak of a crisis and does not resort to harsh emergency actions. The key reason for the current weakening remains the seasonal factor, which in Ukraine repeats almost every year. The end of the budget year and the first weeks of the new one mean a massive injection of hryvnia into the economy. The state increases spending, businesses close financial obligations, bonuses and social payments are made. Part of this money naturally goes to the foreign exchange market, because the country has significant import needs.

Several other important factors add to this pressure on the exchange rate:

• Imports of energy equipment and energy resources, which grow amid war conditions and problems in the energy sector
• Psychological behavior of the population, when the cash market reacts faster and more sharply than the interbank market
• Budget operations at the turn of the year, which traditionally increase demand for foreign currency
• Global euro dynamics, whose rate in Ukraine is derived from the dollar/euro pair and the hryvnia-to-dollar rate

It is important to understand that the euro in Ukraine does not rise on its own. Its rate is formed from two components: the situation on global markets and the domestic hryvnia rate against the dollar. Therefore, crossing the psychological mark of 50 hryvnias looks dramatic, but technically it is quite explainable.

Special attention should be paid to the position of the National Bank. For more than two years, the regulator has been operating under a managed flexibility regime. This means the NBU does not try to hold the hryvnia “at any cost,” but also does not allow it to go out of control. Currency interventions are used to smooth peak fluctuations, not to fix the rate at a specific level. This approach is of fundamental importance. An exchange rate that can move in both directions makes the economy more resilient, not weaker. Artificially holding the hryvnia, on the contrary, accumulates risks and leads to sharp currency crises when reserves are depleted. That is why the current situation is fundamentally different from problematic periods of previous years. Today Ukraine has record international reserves over 57 billion dollars, stable monetary policy, and a significantly smaller imbalance between currency demand and supply than, for example, at the end of 2024. Back then, the regulator had to spend billions of dollars in reserves to stabilize the market. Now there is no need for intervention on such a scale.

Time for Action analyzed all available confirmed information and key market signals, and they boil down to a simple conclusion: the hryvnia is currently going through a phase of adjustment, not destruction. The market is adapting to the real balance of money in the economy, inflationary processes, and import needs. Another point that often goes unnoticed is information noise. The cash segment usually exaggerates exchange-rate movements by widening the spread between buying and selling. This creates a sense of nervousness and instability, even though fundamental indicators remain relatively healthy. This is where the risk of self-fulfilling expectations arises, when people buy currency “just in case,” thereby increasing pressure. What comes next? Speaking the language of a financier, several factors will shape exchange-rate dynamics in the coming weeks:

• NBU policy and the volumes of currency interventions
• The fading of seasonal demand after the end of the mass payment period
• Import volumes, primarily energy-related
• Inflows of external financial assistance
• Behavioral expectations of the population and businesses

In the absence of new shocks, these factors are more likely to work toward gradual stabilization, rather than sharp moves. The amplitude of fluctuations may be wider than before, but this is the price of flexibility, not a sign of lost control. In the end, the current hryvnia rate is a mirror of a wartime economy, not its verdict. It reflects real expenditures, import needs, and seasonal imbalances, while at the same time showing that the system rests on a margin of strength, not on illusions. And this, today, is the main stabilizing factor, even if the numbers on the board look unpleasant.

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