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Ukrainian Hryvnia Weakens Third Day as Interventions Reduced

Feb. 4 (Bloomberg) -- Ukraine’s hryvnia tumbled amid speculation the central bank is scaling back currency-market interventions to help counter a record current-account deficit.

The currency depreciated 1.4 percent to 8.7750 per dollar by 6:08 p.m. in Kiev, after earlier sliding 2.5 percent to its weakest intraday level since Sept. 2009 at 8.8750. The hryvnia has lost 6.1 percent this year, the most after the Argentinian peso and the Russian ruble among all peers tracked by Bloomberg.

Ukraine, a key transit nation for Russian natural gas to the European Union, is rattled by the first deadly street protests since its 1991 independence from the Soviet Union while the economy struggles to recover from a recession. The current-account gap, a measure of cross-border money flows, widened to a record 8.9 percent of gross domestic product last year from 8.1 percent in 2012, the central bank said today.

The central bank is “now trying to manage the currency weaker,” Timothy Ash, a London-based strategist at Standard Bank Group Ltd., wrote in e-mailed comments today. “With other emerging-market currencies weakening aggressively, including important trade partners, this makes the need for a weaker currency obvious.”

A Bloomberg gauge of 20 emerging-market currencies fell to its lowest level in almost five years yesterday and climbed 0.6 percent to 89.5339 today. The measure’s 14-day relative strength index traded below 30 for two weeks through yesterday, a threshold signaling to some technical analysts that a security is oversold. The RSI fell to 19 yesterday, near the lowest level since May, before recovering to 33 today.

Loan Pledge

Ukraine’s opposition urged lawmakers today to curb the powers of President Viktor Yanukovych, who snubbed a European Union cooperation deal in November to win a $15 billion loan pledge from Russia. The EU and the U.S. are considering aid for Ukraine if a new government is formed, U.S. State Department spokeswoman Jen Psaki said yesterday in Washington.

The prospect of western aid is “positive for sentiment toward the country’s external debt as it continues to highlight that Ukraine is able to benefit from the competing interests of the West and Russia,” Vladimir Osakovskiy, a Moscow-based analyst at Bank of America Corp., wrote in a report today.

The yield on the sovereign’s dollar-denominated debt due this June was little changed at 13.58 percent, after falling 115 basis points, or 1.15 percentage points, yesterday. The cost of insuring the country’s debt for five years with credit-default swaps fell 48 basis points to 975, according to CMA data.

Gas Delivery

Russia bought $3 billion of two-year bonds from Ukraine in December and cut the price for gas deliveries after Yanukovych rejected the EU pact. Further aid may be on hold until a new cabinet is formed after the resignation a week ago of Prime Minister Mykola Azarov, Russian President Vladimir Putin said Jan. 29.

The EU’s main offer for Ukraine continues to be the association agreement that Yanukovych refused to sign in November, which would open the bloc to Ukraine’s exports, European Commission President Jose Barroso said yesterday in Brussels.

“If somehow Yanukovych left the scene, then the Russian aid would come into question, and Ukraine badly needs that,” Viktor Szabo, a money manager who helps oversee $10 billion at Aberdeen Asset Management Plc in London, said by e-mail today. “The situation is unstable.”

To contact the reporters on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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