Overview:
The shilling averaged Shs3,709.51 to the US dollar during the month, representing a 1.3 per cent depreciation on a quarter-on-quarter basis, according to the Bank of Uganda (BoU) Monetary Policy Committee (MPC) Summary Report.
The Uganda shilling depreciated by 3.2 per cent against the US dollar year-on-year in July, extending pressure on the local currency amid heightened geopolitical tensions and increased demand for foreign exchange.
The shilling averaged Shs3,709.51 to the US dollar during the month, representing a 1.3 per cent depreciation on a quarter-on-quarter basis, according to the Bank of Uganda (BoU) Monetary Policy Committee (MPC) Summary Report.
The central bank attributed the annual and quarterly depreciation mainly to bearish market sentiment following renewed hostilities in the US-Iran conflict.
The pressure was compounded by increased demand for dollars from the oil, manufacturing and telecommunications sectors compared with the same period last year.
On a monthly basis, however, the shilling appreciated by 0.2 per cent in July, supported by continued inflows of foreign currency from the mining and energy sectors, agricultural exports and remittances.
“Despite recent depreciation, the Uganda shilling has remained one of the most resilient currencies against the US dollar over the past five years,” BoU said.
Geopolitical tensions
The latest depreciation follows sustained pressure on the shilling earlier in the year.
In its June State of the Economy Report, BoU said the currency had depreciated by 3.0 per cent year-on-year, 4.7 per cent quarter-on-quarter and 1.3 per cent month-on-month in May.
The central bank attributed the May depreciation largely to increased corporate demand for dollars from the manufacturing and energy sectors amid heightened uncertainty arising from the conflict involving the United States, Israel and Iran.
“The broader appreciation of the USD internationally also amplified depreciation pressures,” BoU said.
Election effect
Mr Richard Nsubuga, the Acting Head of Trading, CIB Markets at Absa Bank Uganda, said capital movements ahead of the 2026 general elections also contributed to pressure on the shilling.
He said some offshore investors moved to hedge their foreign exchange positions after successfully investing in Ugandan government bonds, particularly following purchases made in the fourth quarter of 2025.
“The run-in to the general elections saw some capital flight by offshore investors who decided to hedge their foreign exchange positions following successful bond purchases, especially in quarter four of 2025,” Mr Nsubuga said.
He said the Middle East crisis intensified pressure on the shilling from March as investors reduced their exposure to emerging and frontier markets, including Uganda.
As global investors shifted funds into perceived safe-haven assets, demand for the US dollar increased, putting further pressure on the local currency.
“Offsetting dollar inflows from remittances, coffee and gold exports during that period weren’t sufficient to cushion the shilling against the strong demand for hard currency,” Mr Nsubuga said.
Energy costs
Rising energy prices have also added to the pressure, Mr Nsubuga said.
Higher energy costs increased transport and business expenses, contributing to inflationary pressures and raising demand for foreign exchange.
“Additionally, higher energy prices raised both transport and business costs, which pointed to higher inflation across the globe, increasing the need for foreign exchange,” he said.
The shilling has therefore faced a combination of external and domestic pressures, including geopolitical tensions, stronger corporate demand for dollars, offshore capital movements and higher energy costs.
However, inflows from exports, mining, energy and remittances continue to provide some support to the currency and helped it record a modest monthly gain in July.