Shilling hits weeks-low as dollar hunt intensifies

KAMPALA, Uganda — Uganda’s shilling fell to its weakest level in weeks as heavy dollar buying by traders and offshore investors combined with escalating tensions in the Middle East to drag the currency lower.

The shilling ended the week at 3,690/3,700 per U.S. dollar, down from 3,670/3,680 at the week’s open.

Analysts warned the slide could ripple well beyond the foreign exchange market.

“While the shilling will continue trading under sustained downward pressure, there are other broader specific impacts that will manifest, such as an inflation shock, flight to safety, strained trade balance, all expected to cause fiscal stress in the coming months,” said Stephen Kaboyo, managing director at Alpha Capital.

Richard Nsubuga, a market analyst at Absa, said the currency is vulnerable but likely to trade between 3,600 and 3,720 in the near term.

Global markets were unsettled after the United States carried out strikes on Iranian targets, including a reported attack on an oil tanker near a major Iranian export hub — the first such incident since Washington reimposed restrictions on Iranian ports. Iran retaliated during the week with attacks on U.S. military bases in the region. President Donald Trump said further action against Iran’s infrastructure was possible if talks fail to progress.

Brent crude climbed toward $85 a barrel and was headed for a weekly gain of about 12%, a costly development for Uganda, which imports all of its fuel.

The dollar index held near 100.7 but was set for a weekly loss after U.S. inflation data came in softer than expected. Consumer prices rose less than forecast in June and producer prices fell, easing pressure on the Federal Reserve to raise rates further even as the Iran standoff kept energy-driven inflation risks in play.

Uganda’s domestic debt market showed no such strain. The Bank of Uganda reopened its three-year, 10-year and 20-year bonds in the fiscal year’s second auction, seeking 990 billion shillings, and drew bids of just over 1 trillion shillings — 104.5% of the amount offered. Investors were flush with cash from recently paid bond coupons and maturing securities. The three-year bond cleared at 12.4%, the 10-year at 15.45% and the 20-year at 15.95%.

The central bank will reopen its two-year, five-year, 15-year and 25-year bonds at the next auction, scheduled for July 29.

Elsewhere in the region, the Kenyan shilling was little changed, trading between 129.00 and 129.50 per dollar on balanced liquidity. Traders expect a range of 129.20 to 129.90 as month-end flows pick up.