On February 5, I posted Ukraine Floats the Hryvnia: It Sinks, As Expected, Down 45% Today; Carpetbaggers Take Over. Since then, action has been volatile.

Three Days of Wild Swings

click on chart for sharper image

Each of the last three days has seen wild gyrations, all stopping at an upper limit of 25 Hryvnia per one US dollar. It almost seems as if there is a cap on how low Ukraine is willing to let the Hryvnia sink.

If there is another peg, it will likely fail soon.

Today Reuters reports Ukraine cuts official hryvnia rate, closes gap with market rate.

Ukraine cut the hryvnia’s official rate on Monday to an all-time low of 24.96 to the dollar, the central bank said, bringing it broadly into line with the market rate following a steep slump in the currency’s value last week.

The rate stood at 23.13 on Friday.

On Thursday the hryvnia lost 30 percent against the dollar after the bank moved towards a free float, stopping currency auctions that had served as a peg for the exchange rate and ramping up base interest rates.

The move all but paralysed the country’s foreign exchange market, with buyers of hard currency putting off purchases and sellers holding out for higher levels.

According to Reuters data, the bid/ask spread for the hryvnia was in a range of 24.50-25.50 to the dollar on Monday.

The head of FX and money markets at a large Ukrainian bank said sufficient dollar buyers had emerged at around 25.00.

“Trading has been active. If everything goes well in Minsk and if the IMF also gives us money, then we could strengthen to 22-23, but if everything breaks down on Wednesday in Minsk, then I cannot vouch for the rate,” he said by telephone.

There is little reason to expect things to go well on the war front. Nor is there a reason for the hryvnia to stabilize here even if talks in Minsk do go well. Ukraine is bankrupt and on dwindling foreign exchange reserves.

Mike “Mish” Shedlock