You're reading: Hryvnia hits 7-week low ahead of election

The Ukrainian hryvnia fell to a seven-week low against the dollar ahead of parliamentary elections on Sunday which analysts say could pave the way for a depreciation of the currency.

The hryvnia, which has been loosely pegged to the dollar since early 2010, weakened to 8.1790 per dollar on Thursday morning after closing at 8.1590 on Wednesday.

State-run Oshchadny Bank then quickly entered the market with bids that brought the rate up to 8.1690 per dollar.

Analysts say the hryvnia is overvalued, as evidenced by Ukraine’s widening trade and current account deficits, and there are widespread expectations that officials will back off efforts to prop up the currency after the elections are over.

“Ordinary people are panicking and emptying banks’ (foreign currency) cash reserves for fears of devaluation,” said a trader at a large local bank.

The government has never openly admitted it intends to allow the hryvnia to depreciate but the central bank spent $2.5 billion on interventions in the first seven months of this year and analysts say it would struggle to maintain that sort of support for the currency going forward.