The Uganda shilling experienced a volatile but broadly stable week against the US dollar, as intermittent foreign-currency inflows helped offset persistent demand from corporates and offshore investors, according to Absa Bank Uganda weekly market report.
According to the report, the local unit opened the week on a firmer footing, strengthening from 3 930 / 3940 levels to 3,895 / 3905 levels as subdued hard-currency demand and pockets of inflows from commodity exporters and charities provided support.
This was coupled with healthy interbank and offshore dollar inflows ahead of the Treasury bond auction pushing the shilling to an intraday high of 3890 / 3900 on Tuesday. However, the gains proved temporary as renewed offshore demand reversed an early commodity-supported appreciation in the latter half of the week, pushing the currency to trade 3985 / 3995 on Friday mid – afternoon. The shilling has weakened by about 5.34% over through September and 12.03% over the previous 12 months.
Looking ahead, the Uganda shilling is expected to remain vulnerable to renewed dollar demand from offshore investors and large corporate importers, particularly those in the energy, manufacturing and telecommunications sectors with broader depreciation trend further exacerbated by high international oil prices, offshore portfolio adjustments and uncertainty surrounding the Middle East conflict.
Nevertheless, foreign-currency inflows linked to government securities, commodity exports, charities, remittances, and tight liquidity in the money markets could periodically provide support and limit the extent of depreciation. In the near term, the currency is expected to trade within the 3920 – 4000 range against the US dollar, with the balance of risks remaining tilted toward further weakness should offshore and corporate demand intensify.
Money market conditions experienced a shift in liquidity notably towards the end of the week as the overnight funding rates rose from 9.42% to 9.75% early in the week, before increasing sharply to 11.50% on Thursday as the new 13.50% Cash Reserve Ratio took effect. The higher reserve requirement reduced liquidity available to commercial banks and prompted a significant adjustment in short-term interbank liquidity and funding costs.
At the Treasury bond auction, the reopened 2-year and 25-year bonds cleared at higher yields of 12.00% and 16.25%, respectively, while the 5-year yield was broadly unchanged at 13.74%. The newly issued 15-year benchmark bond cleared at 15.25%, although it attracted accepted bids of only UGX 89.4 billion. Overall, the auction recorded an acceptance rate of 86%, with UGX 1.2 trillion in face value accepted. Demand was heavily concentrated in the 25-year bond, which accounted for UGX 1.036 trillion of the total allocation.
Secondary-market activity was subdued following the auction as participants adopted a cautious post-auction stance. Looking ahead, liquidity conditions are expected to remain relatively tight as banks adjust to the higher reserve requirement, potentially sustaining elevated interbank funding rates and a firmer yield bias across the government securities market.
The Kenya shilling remained broadly stable against the dollar during the week, weakening marginally toward the close of the week as dollar demand increased. The shilling opened around the 129.50 level on Monday, with balanced flows across the client and interbank markets keeping the pair well anchored. Trading remained range-bound in the first half of the week as improved interbank liquidity allowed larger transactions to be absorbed with limited price impact.
However, broad-based corporate and interbank demand picked up from Wednesday, pushing the shilling to 129.45/55. Month-end conversions by corporates and NGOs, together with remittance inflows, helped moderate the upward pressure. Historical market data confirms that USDKES remained close to the 129.50 area during September, consistent with the currency’s prolonged period of relative stability. Looking ahead, the Kenya shilling is expected to remain broadly range-bound, supported by diaspora remittances, NGO flows, and adequate foreign-exchange reserves.
Oil recorded a divergent performance this week, with WTI falling 1.1% to $94.74 per barrel, while Brent climbed 6.0% to $106.37 per barrel. Prices initially declined as Saudi Arabia made progress in restarting its East-West pipeline and crude loadings recovered to about 5.6 million barrels per day, easing immediate supply concerns.
However, Brent rallied sharply later in the week as disruptions to Persian Gulf exports persisted, and uncertainty remained over negotiations to reopen the Strait of Hormuz. The divergence caused Brent premium over WTI to widen from $4.56 to $11.63 per barrel, reflecting Brent’s greater exposure to global supply risks and softer demand for US crude.
The prospect of a US diesel export ban added further volatility by pushing European diesel prices higher relative to US prices, while also raising concerns about refining incentives and future fuel supplies. Near-term direction will depend on the Saudi pipeline restart, progress in US-Iran talks over the Strait of Hormuz, and whether the US proceeds with restrictions on diesel exports.
Gold declined approximately 2.4% this week to $4,273.97 per ounce, remaining about 23.6% below its January 2026 peak, although it is still up 14% over the past year. The main pressure came from the sharp rise in US 10-year real yields to 2.80%, their highest closing level in roughly 18 years, which increased the opportunity cost of holding non-yielding bullion.
Hawkish commentary from several Federal Reserve officials and stronger-than-expected US economic data reinforced expectations of further interest-rate increases, contributing to a roughly 1.7% decline in gold during Wednesday’s session. Gold also remained sensitive to oil-price volatility, as higher energy costs strengthened inflation concerns and expectations of additional monetary tightening.
Both the euro and sterling weakened significantly against the US dollar this week, with EUR/USD declining 0.97% from 1.1486 to 1.1375 and GBP/USD falling 1.32% from 1.3395 to 1.3218. The primary driver was broad dollar strength, supported by resilient US economic data and hawkish Federal Reserve commentary that reinforced expectations of further interest-rate increases. Oil prices near $100 per barrel added to the pressure by creating a stag-flationary backdrop for Europe and the UK, raising inflation expectations while weakening the outlook for economic growth.
Although hawkish ECB signals and market pricing for four additional rate increases helped limit the euro’s decline, they were insufficient to offset the dollar’s yield advantage and safe-haven demand. Sterling underperformed the euro despite rising UK gilt yields and expectations of further Bank of England tightening, as mixed UK economic data and uncertainty over whether the BoE would deliver the rate increases priced by markets weighed on the currency. Consequently, EUR/GBP rose 0.37% to 0.8606, underscoring sterling’s relative weakness. Looking ahead, both currencies are likely to remain sensitive to US rate expectations and energy prices, while the ECB’s policy signals will be key for the euro and confidence in the BoE’s tightening path will remain the principal domestic driver for sterling.
