Today, on 27 December 2016,  the interbank FX market sees temporary excess demand for foreign currency  driven by situational factors.

On the one hand, the supply of foreign currency was limited due to the Christmas holidays in the U.S. and Europe. In most cases, the bulk of FX proceeds in US dollars and euros, mainly from exports of goods and services, pass through the correspondent accounts of Ukrainian banks opened with banks in the U.S. and Europe. Authorized banks are required to sell foreign exchange proceeds on the day following the day of crediting foreign currency to their accounts.  Accordingly, when the business day on 26 December 2016 coincided with the public holiday in the U.S. and Europe, FX proceeds were not credited to the accounts of Ukrainian banks. As a result, on 27 December 2016, the supply of foreign currency was limited on 27 December 2016. 

On the other hand, the FX market is under pressure from strong demand for foreign currency on the part of exporters that received VAT refunds last and this week.

With a view to preventing excessive exchange rate volatility, the National Bank of Ukraine announced a FX sale auction on 27 December 2016. The amount to be auctioned is  up to USD 80 million.  

As a side note, when the short-lived factors play a dominant role in the FX  market, as is the case today, the NBU has enough instruments to smooth out excessive exchange rate volatility.  Ukraine’s international reserves currently amount to USD 15.7 billion.  This amount is  sufficient for conducting foreign exchange sale interventions  and  enabling the  NBU and the Government to settle their foreign debt obligations.