The Uganda shilling registered gains during the week supported by end of Financial Year tax conversions, dollar inflows from remittance firms, commodity exporters, and offshore players amid subdued corporate demand.
According to Absa Bank Uganda’s weekly market report, the local unit seen trading at 3645 / 3655 levels on Friday morning, stronger than the week’s opening of 3690 / 3700.
Corporate activity is expected to pick up at the onset of the new Financial Year, which could exert some pressure on the currency, but this could be contained due to existing commodity export inflows. The shilling is still projected to trade within a wider range of 3600–3720 in the near term.
The market is awash with liquidity with overnight and one-week rates averaging within 9.00%-10.50% range. To manage the excess funds, the Central Bank was in the market on Thursday mopping out a total of UGX 1.085 trillion through issuance of Bank of Uganda bills and the 7-Day REPO.
The USD/KES pair was stable during the week trading within 129.20 – 129.80 range in a session dominated by balanced liquidity. Looking ahead, we expect a positive boost to Kenya’s foreign exchange reserves following the approval of USD 500 million in World Bank funding. In the near term, the Kenya shilling is expected to trade within the 129.20–129.90 range as month end flows come into play.
Crude oil prices were little changed at around $69 per barrel on Friday afternoon, remaining close to levels last seen before the Middle East tensions escalated in late February. The stability reflects continued improvements in commercial shipping through the Strait of Hormuz, supported by positive developments in US – Iran negotiations.
According to reports, Saudi Arabia’s crude exports have recovered to nearly 90% of pre-conflict levels, as an increasing number of oil tankers successfully pass through the strategic shipping route, pointing to a gradual normalization of regional supply flows.
Meanwhile, the UAE has fully restored oil exports to pre-conflict volumes, aided by the smooth movement of tankers through the Strait of Hormuz and the use of an alternative pipeline network that bypasses the critical chokepoint.
The US dollar index remained below the 101 mark on Friday, extending its decline from the previous session as softer-than-expected US employment data reinforced expectations that the Federal Reserve may have less need to tighten monetary policy further this year.
The US economy created 57,000 jobs in June, the lowest monthly gain in four months and significantly below market expectations of 110,000, while the unemployment rate came in at 4.2%. Adding to the dollar’s weakness, Fed Chair Kevin Warsh noted that inflation expectations are easing, while reiterating the central bank’s commitment to keeping inflation under control and preserving price stability.
The British pound strengthened toward $1.34, reaching its highest level in two weeks, supported by broad dollar weakness following disappointing US employment data and improved market sentiment amid encouraging developments in indirect US-Iran negotiations.
Meanwhile, Bank of England Governor Andrew Bailey maintained a cautious policy stance, acknowledging signs of slowing economic activity in the UK but stressing that persistent inflationary pressures continue to limit the scope for near-term interest rate cuts.
The euro advanced toward $1.1490, recovering from recent one-year lows as the softer US jobs report weighed on the dollar. However, gains were capped by weaker-than-expected inflation figures from the Eurozone and dovish comments from ECB President Christine Lagarde.
Headline inflation slowed to 2.8% in June from 3.2% in May, while core inflation eased to 2.4%, both coming in below market expectations and reinforcing expectations of a gradual easing in inflationary pressures.
Gold prices rose toward $4,200 per ounce on Friday, building on the previous session’s gains as weaker US labor market data reduced expectations for further Federal Reserve rate hikes. The softer interest rate outlook increased the appeal of the non-yielding precious metal, providing additional support to prices.
