Overview:
Uganda shilling weakens against the dollar amid heavy corporate demand, high oil prices and upcoming Bank of Uganda bond auctions.
KAMPALA, Uganda — Persistent demand for foreign currency from energy, telecommunications and manufacturing firms pushed the Uganda shilling significantly lower against the U.S. dollar last week, surpassing inflows from commodity exports, remittances and relief agencies.
Commercial banks quoted the local unit at 3,755/3,765 per dollar on Friday morning, down from 3,690/3,700 recorded at the start of the trading week.
Absa market analyst Richard Nsubuga noted that the currency is expected to remain under pressure in the near term as corporate buyers continue seeking greenbacks and Middle East geopolitical tensions fuel global market volatility. Market dealers project the shilling will trade between 3,650 and 3,820 in the coming days.
Stephen Kaboyo, managing director at Absa, said investors are awaiting upcoming inflation data, which is widely expected to show an acceleration driven by elevated fuel costs. He added that global energy disruptions will continue limiting any immediate recovery for the local currency as the economy absorbs the shock.
In response to market liquidity conditions, the Bank of Uganda absorbed excess cash through seven-day repurchase agreement operations. Market participants are also positioning themselves for the central bank’s Treasury bond auction scheduled for July 29, which will feature reopened two-year, five-year, 15-year and 25-year instruments.
Regional markets reflected similar pressures. The Kenyan shilling slipped to 129.30/129.50 against the dollar Friday morning from an opening level of 129.10/129.20, with traders expecting a range of 129.20 to 129.90. The Central Bank of Kenya may step in if commercial demand intensifies further.
On the international front, Brent crude oil surged past $100 per barrel, securing a weekly gain of nearly 14 percent amid fears that escalating Middle East conflict could disrupt supply chains. Higher oil prices provided support to the U.S. dollar index, which held near 101.3 following new import tariffs announced by Washington and expectations of sustained high interest rates from the Federal Reserve.
In contrast, European currencies softened. The euro dipped below $1.139 after the European Central Bank maintained its benchmark interest rates, while the British pound eased to $1.336 on fiscal concerns in the United Kingdom. Gold prices also declined toward $4,030 per ounce as higher energy costs and tighter monetary policy outlooks weighed on demand for the precious metal.