The Uganda shilling traded sideways during the week against the dollar in last week’s trading session, influenced by balanced greenback demand and supply, according to Absa Bank Uganda weekly market report.
Demand was largely seen coming from the energy, manufacturing, and telecommunications sectors, while balancing supply was seen originating from commodity exporters, Non-Profit Organizations, and remittance firms. The shilling was seen trading relatively stronger at 3745 / 3755 levels on Friday morning compared to the week’s opening levels of 3770 / 3780. Shilling vulnerability is still expected to rotate around corporate activity and the Middle East tensions, with an expected new trading range of 3650 – 3820 in sight.
The market was awash with liquidity with overnight and one-week rates averaging within 6.75%-10.00% range. The Bank of Uganda continued its liquidity management operations, mopping up UGX 667 billion from the market through their Open Market Operations tools.
Yields from Wednesday’s Treasury bond auction declined across the curve, with the 2028s, 2032s, 2039s and 2050s bonds clearing at 12.50%, 14.25%,15.65% and 16.00%, respectively, representing reductions of 30bps, 45bps, 10bps and 29bps respectively from the previous auction. The Government offered a total of UGX 1.4 trillion and accepted UGX 1.36 trillion in face value, translating into UGX 1.45 trillion in cash proceeds.
The USD/KES pair traded under pressure during the week as G2G cargo related demand flows weighed in on the shilling. The shilling traded within 129.20 – 129.70 range during the week. Looking ahead, the Kenya shilling is expected to trade within the 129.20–129.90 range with support likely to come the Central Bank is demand pressures persist.
Brent crude fell below $86 a barrel on Friday, although it remained on course for a monthly gain exceeding 20%. The rise was driven by renewed tensions between the United States and Iran, which heightened concerns over potential disruptions to energy supplies from the Middle East.
The US carried out additional strikes against Iranian targets following attacks by Tehran on American assets in the region, reducing expectations of an imminent diplomatic resolution. Despite the escalating conflict, crude shipments through the Strait of Hormuz picked up after a recent slowdown, enabling millions of barrels of oil to continue flowing through the key maritime route.
The US dollar index hovered around the 100 level on Friday after posting losses for three consecutive sessions and was set for a weekly decline of more than 1%. The dollar came under pressure from the Federal Reserve’s cautious approach to monetary policy, as well as reports of possible intervention by Japanese authorities to strengthen the yen. The greenback dropped as much as 3.3% against the Japanese currency on Thursday, amid speculation that Tokyo had re-entered the foreign exchange market. Adding to the pressure, US Treasury Secretary Scott Bessent described the yen as significantly undervalued and warned that excessive movements in exchange rates can be damaging.
At the same time, the Federal Reserve left interest rates unchanged this week despite growing inflation concerns linked to renewed tensions in the Middle East. However, three members of the Federal Open Market Committee (FOMC) supported a rate increase. Even so, investors continue to assign roughly a 63% probability of a 25-basis-point rate hike in September.
The euro climbed to $1.148, its highest level since 17 June, supported by stronger-than-anticipated economic indicators from the eurozone. The upbeat data strengthened market expectations that the European Central Bank may implement a second interest rate increase this year, with a possible move as early as September.
These expectations helped the single currency gain ground despite ongoing concerns over escalating tensions in the Middle East and uncertainty surrounding the Federal Reserve’s policy direction.
Sterling rose to $1.34, its strongest level since 20 July, after the Bank of England voted 6-3 to maintain the Bank Rate at 3.75%, compared with market expectations of a closer 7-2 vote. The central bank noted that the effects of higher energy prices remain difficult to gauge and cautioned that inflation is expected to increase later in the year as rising energy costs filter through the economy.
The BoE also highlighted growing risks that inflation could remain elevated for longer, with the balance of risks now skewed to the upside. However, it acknowledged that ongoing developments in the Middle East could still have a significant impact on the economic outlook.
Gold slipped below $4,100 an ounce on Friday, snapping a two-session winning streak, but remained on track for its first monthly gain in five months. The precious metal found support this week after the US Federal Reserve left interest rates unchanged despite mounting inflationary pressures stemming from renewed hostilities in the Middle East.
