The Ugandan shilling has recorded fresh gains in post-election trading, closing at 3,437.73 against the dollar. Renewed market confidence and steady inflows have reversed months of currency pressure that saw the unit weaken beyond 3,700 late last year.
The Uganda shilling fell 1.4% against the dollar last week as declining government bond yields prompted offshore investors to exit positions and take profits.

Overview:

A sharp drop in Treasury bond yields and high dollar demand from the energy and telecom sectors pressured the Uganda shilling toward the 3,595 mark.

KAMPALA, Uganda — The Uganda shilling fell 1.4% against the dollar last week as a sharp decline in government bond yields led offshore investors to pull capital out of the local market.

The local unit, which opened the week at 3,535/3,545, slid to 3,585/3,595 by Friday. Traders attributed the decline to a combination of heavy dollar demand from the energy, manufacturing, and telecommunications sectors and a sell-off in the fixed-income market.

Yields on 3-year, 10-year, and 20-year Treasury bonds dropped significantly during Wednesday’s auction, falling by as much as 261 basis points compared to early January. The 20-year bond cleared at 15.490%, down from previous highs.

Richard Nsubuga, acting head of trading at Absa, said the lower yields prompted offshore investors to take profits. As these investors converted their shilling holdings into dollars to exit their positions, the increased demand for greenbacks weighed on the local currency.

Despite the weekly slip, some analysts remain optimistic about the currency’s long-term prospects.

The bullish potential for the shilling remains intact, said Stephen Kaboyo, managing director at Alpha Capital. He noted that broader economic conditions continue to support the shilling and expects the unit to hold within recent ranges.

The Bank of Uganda is scheduled to return to the primary market Feb. 25 for a Treasury bill issuance. Market observers expect participation to remain steady as investors adjust to the recent yield corrections.

Regionally, the Kenya shilling remained stable, trading between 128.80 and 129.20. Support for the Kenyan unit came from offshore bond purchases and steady remittance receipts, which offset demand from commercial banks.

On the global stage, the dollar index approached 98 on Friday following strong U.S. economic data. Gold prices held near $5,000 an ounce, while U.S. crude oil rose above $66 per barrel amid geopolitical tensions between Washington and Tehran.