KAMPALA — The Ugandan shilling edged lower last week, ending its period of stability as renewed demand for U.S. dollars from key business sectors drove the local currency’s value down. The shilling closed the week at 3,557 to 3,567, a slight depreciation from its opening rate of 3,553 to 3,563.
The dip was primarily fueled by demand from commercial banks and corporations, particularly those in the energy and manufacturing sectors, which sought to take advantage of favorable currency movements to stock up on greenbacks. This aggressive buying pressure briefly pushed the local unit to a mid-week low of 3,570 to 3,578.
However, the shilling showed resilience toward the end of the week, with inflows from commodity exporters helping to counteract the pressure. Traders noted the market had seemingly reached a point of equilibrium, with little to suggest a significant directional shift in the near term.
According to Stephen Kaboyo, a market observer, the economy’s underlying strength has already been factored into market sentiment.
“The market has priced in a strong economy with conditions supportive of an equally strong currency in the near term,” he said. “At the moment, there is no solid catalyst to drive any significant directional momentum.”
Analysts expect the shilling to remain within a stable trading band of 3,530 to 3,600, with potential for modest gains.
The money markets remained flush with liquidity, with the overnight interbank rate averaging 9.85% and one-week funding at 10.17%, according to an Absa Bank report. Market liquidity was notably boosted on Thursday after the central bank injected over 1 trillion shillings into the economy through matured repos and bills.
The Bank of Uganda did not conduct any open market operations during the week. However, the central bank has scheduled a treasury bill sale for tomorrow, with 355 billion shillings on offer.
Globally, the U.S. dollar index remained firm above 98.50, driven by upbeat data from the S&P Global Purchasing Managers Index ahead of the Jackson Hole symposium. Across the border, the Kenyan shilling was stable, trading in a narrow 129.00-129.40 band, as dollar inflows from its interbank market were sufficient to meet corporate demand.
