Ukraine's Currency Takes a Hit

The hryvna weakened against the dollar on Friday after Fitch Ratings downgraded Ukraine and the finance minister resigned the day before, deepening concern that the country will not be able to shore up its economy.

The currency, which has slumped 52 percent versus the dollar over the past six months, dropped 1.8 percent to 8.1500 per dollar Friday evening, paring a 0.3 percent advance this week. It lost 2.4 percent to 10.51 per euro.

Fitch on Thursday reduced Ukraine's credit rating to B, five levels below investment grade, the same day Finance Minister Viktor Pynzenyk resigned, saying the post had become "hostage" to politics. Pynzenyk objected to the parliament-endorsed budget for 2009, which plans for a deficit of 2.97 percent of gross domestic product. The shortfall would be in violation of the country's $16.4 billion loan agreement with the International Monetary Fund.

"It's negative news, it's unwelcome news as the situation in Ukraine is deteriorating," said Ali Al-Eyd, an emerging markets fixed-income analyst in London at Citigroup.

Fitch, which kept a "negative" outlook on the country, predicts that Ukraine's economy will shrink 4.5 percent this year, and Citigroup is revising its current forecast of a 3 percent contraction "much lower," Al-Eyd said.

Pynzenyk led the Ukrainian side in negotiations with the IMF, making his departure "unhelpful," Al-Eyd said.