Shilling surrenders gains as banks, investors buy dollars

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The Uganda shilling slid further against the dollar by the close of last week, trading at 3490/3500 by mid-morning Friday.

The local currency, which held steady around 3425/3435 last week, succumbed to renewed pressure as offshore players returned to the market with fresh dollar demand.

Local banks later joined the rush, deepening the shilling’s decline traders said. Richard Nsubuga, acting head of trading at Absa said the currency could test the 3500 mark if buying momentum continues.

Money markets were awash with liquidity through the week, prompting the Bank of Uganda to mop up sh824b on Thursday to keep rates in check. The interbank overnight and one-week lending rates averaged 9.78% and 10.10%, respectively, according to Bank of Uganda data.

While no government securities were issued during the trading week, the central bank plans to auction treasury bills worth sh355b this week.

“While key domestic key levers are playing in support, on the global stage, strong headwinds are gathering on renewed US-China trade wars that have already demonstrated potential to cause another round of dollar volatility, and this could influence the direction of emerging and frontier markets currencies in the short term,” Stephen Kaboyo, a market observer, said.

In the regional markets, the Kenyan shilling held steady in its tight range of 129.00 to 129.40, as balanced trading between dollar inflows and corporate demand kept the currency anchored. Market analysts also expect little movement in the short term, saying no major shifts in fundamentals are visible.

In the global markets, the US dollar index slid to 98.10 from highs of 99.45, setting the stage for its biggest weekly fall in two months. The decline followed dovish comments from Federal Reserve officials hinting at policy easing, compounded by renewed pressure on US regional banks and easing political risks in Japan and France.

The British pound strengthened above 1.3470 during the week, boosted by expectations that the Fed will cut rates twice before the end of 2025. Traders have priced in a 95% probability of such cuts, betting that the dollar’s strong run is running out of steam.

By Friday afternoon, the pound had slipped back to 1.3410 amid worries that the Bank of England could also trim rates as geopolitical tensions and US-China trade jitters spook investors.

In commodities, Brent crude traded near $60 a barrel, down 4% for the week and heading for its third straight weekly loss, the longest losing streak since March. Traders are increasingly concerned about oversupply and the potential fallout from renewed trade tensions between Washington and Beijing.

Gold continued its rally, trading at $4377 an ounce on Friday, up a 63% so far this year. The surge is being driven by central bank and institutional buying, alongside private investors in the US piling into coins and bars.