Article / 01 March 2014 at 9:58 GMT

Ukraine's currency plunge nothing more than 'Crimea River'

Director / Accumen Management
United Kingdom

• Hype over USD-pegged hryvnia plunge is overblown
• Hryvnia little traded outside Ukraine
• Other emerging market currencies faring better

It’s all been one-way traffic in Ukraine in the past few weeks and none of it even remotely positive. Attempts at quelling the outrage that inevitably led to scenes of mass violence and more than 100 civilian and police casualties have only gone from bad to worse. Ousted president Viktor Yanukovych refuses to admit defeat and says his decision to flee the capital was for the personal safety of himself and his family. Frankly, I don’t blame him — the only other way he could’ve possibly left Kiev was feet first in a box with a bullet to the back of his head.


Ken Veksler says the Ukraine crisis is a storm in a teacup as far as wider developed markets are concerned. Photo:

It all kicked off after sections of the population, fed up with the ongoing political corruption that was meant to have been eradicated after the Orange Revolution, took to the streets protesting and asking for EU membership. It wasn’t just a case of being fed up — the country is also facing a massive hole in its upcoming budgetary needs and, to a large degree, they were seeking the financial aid that EU membership seems able to provide on an almost unlimited basis.

Obviously, no one from the old guard, who know how things are really done in the former Soviet Union or the new Russia and its Commonwealth Independent States, are too keen to see the apple cart disrupted. Corruption reigns supreme over there and it is inherent in the way things are simply done. Not to mention, of course, the case for Big Bad Vlad (Vladimir Putin for the uninitiated among you), the imperial overseer of all things... well, all things HIS. He, of all people, would not appreciate one of the larger jewels in his crown being taken away. And so it began, but the pace of the escalation and brutality came at a fever pitch.

Enter the West. Well, attempt to enter... Several diplomatic envoys later and all manner of alternate political leadership came crawling out of the woodwork. Big Bad Vlad even pardoned and released former president Yulia Timoshenko from prison as a means by which to provide a viable “independent” alternate to the incumbent government. But still the populous revolted. The crisis has worsened in Crimea (the closest part of the country to the West) overnight and a mad scramble has begun to safeguard it. Russia claims it as its own (although not officially), while Ukraine argues the point with full force (and rightly so).

For now, sadly, there seems to be no definitive resolution to the matter. Fresh presidential elections have been called for May 25 and an interim caretaker government has been appointed until that time.

But seeing that I’m such a heathen and not in the least bit interested in the human element of all of this, my attention, of course, turns to the market impact. For the most part, it has been (pardon the pun) a storm in a teacup as far as the wider developed markets have been concerned. Plenty of attention has been cast on the local currency, the unfortunately named hryvnia. But what few have failed to grasp is its unilateral peg to the USD and what, until now, had been a relatively well-maintained trading band.

Hype about how far it had depreciated in recent weeks was blown out of proportion. But when your country is thrown into chaos, it’s not unheard of for your currency to suffer the requisite fate. But it seems many are missing the simple fact that outside of Ukraine, the hryvnia is basically NOT TRADED. Liquidity in the pair is god-awful and that has deteriorated further thanks to the crisis. Financial news streams have been all a flutter about the depths to which the currency has plunged, but they have failed to grasp the fact that no one actually cares.

As far as the “crisis contagion” goes, give me a break! Other emerging market countries and currencies have — and are — facing their own strife. But even in the midst of it all, they have actually fared better over the past week than what many presumed to be the case. The Brazilian real, for instance, hit annual highs just a matter of days ago against the USD. And while Turkey is in the middle of a continuing monetary and political storm itself, even its own lira has fared remarkably well this week. So for all those wanting to jump on the “end is nigh” bandwagon, I suggest you take a deep breath, check a market screen and briefly re-evaluate the quality of whatever it is you happen to be smoking.

For now, though, I wish for a hasty resolution to the abhorrent situation in Ukraine.

Ken Veksler is the director and chief investment officer of Accumen Management, a London-based boutique asset management and foreign exchange consultancy. Read more of his commentary here

Jim Earls Jim Earls
Maybe they will care when the EUR plunges next.
Felicity A Glover Felicity A Glover
You may have a very pertinent point there, Jim
hicham hicham
The only thing that will drag the US equities and the EUR down is an Alien invasion !


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