Ugandan Shilling strengthens against US Dollar, weakens against Euro and Pound

Uganda’s Ministry of Finance has reported a slight appreciation of the Ugandan Shilling against the US Dollar in May 2025, attributing the development to increased foreign exchange inflows and a weakening of the greenback in global markets.

According to the latest Performance of the Economy Report for May 2025, the Shilling gained by 0.4% during the month, trading at an average mid-rate of UGX 3,653.4/USD, up from UGX 3,669.6/USD recorded in April 2025.

“The appreciation of the shilling was driven by increased inflows from coffee exports, remittances, portfolio investments, and non-governmental organisations,” the report reads in part.

The ministry also cited a weakened US Dollar—a result of rising global trade tensions, including the imposition of tariffs and retaliatory tariffs—as a contributing factor to the local currency’s performance.

Uganda’s foreign exchange market has remained relatively stable in recent months, buoyed by strong earnings from coffee exports—the country’s leading export commodity—and steady diaspora remittances, which continue to be a major source of external financing.

Data from the Uganda Coffee Development Authority (UCDA) shows that the country exported over 500,000 60-kg bags of coffee in April, fetching substantial revenue that supported the shilling.

In addition, the report highlights increasing interest from foreign portfolio investors, particularly in Uganda’s government securities market, and consistent operations by NGOs, which injected foreign currency into the local market.

Losses Against the Euro and Pound

Despite the positive trend against the US Dollar, the Shilling lost ground to other major international currencies. It depreciated by 1.4% against the British Pound Sterling and 0.2% against the Euro during the same period.

Analysts attribute this to stronger performance of the Eurozone and UK economies, which have shown signs of recovery and monetary tightening, making their currencies more attractive to investors.

The depreciation against the Euro and Pound also reflects the divergence in trade balances, with Uganda importing more from Europe and the UK than it exports, increasing demand for those currencies.

The slight appreciation of the Shilling against the Dollar is likely to ease inflationary pressures on imported goods priced in USD and help reduce the cost of external debt servicing, a significant relief as the government ramps up borrowing for infrastructure and development programmes.

However, the depreciation against the Euro and Pound could lead to higher prices for European imports, such as pharmaceuticals, machinery, and vehicles, possibly affecting local consumers and businesses.

The Ministry of Finance says it will continue to monitor exchange rate dynamics closely, especially in light of global economic uncertainty, to ensure macroeconomic stability.

As global financial markets remain volatile, Uganda’s currency performance will largely depend on commodity export earnings, particularly coffee and gold, and capital flow dynamics, including investor confidence and external shocks.

The Bank of Uganda is expected to maintain a cautious stance in managing monetary policy to cushion the economy from currency volatility while supporting growth and investor confidence.