The Uganda shilling experienced a volatile month against the US dollar, initially appreciating before reversing course sharply toward the end of the period, according to Absa Bank Uganda weekly market report.
Richard Nsubuga, the bank’s Ag. Head of Trading says the local currency opened the month at 3745 / 3755 and steadily strengthened to a monthly high of 3705 / 3715, supported by robust offshore selling interest, strong foreign currency inflows from the commodities sector, and relatively subdued dollar demand from local market participants.
However, the gains recorded during the first half of the month proved short-lived as hard currency demand intensified significantly in the latter stages of the period. Persistent and aggressive dollar demand from corporates, particularly in the energy, manufacturing, aviation, and telecommunications sectors, as well as several government parastatals, placed sustained pressure on the local unit. Consequently, the shilling gradually surrendered its earlier gains and weakened to around 3765 / 3775 by month-end, closing the month softer than where it began.
Looking ahead, the Uganda shilling may remain under pressure should corporate demand continue at current levels, particularly from importers and other large end-users of foreign currency. Nevertheless, a rebound in commodity export receipts, renewed offshore inflows, and stronger remittance earnings could provide support and help stabilize the currency in the near term. The shilling is expected to trade within the 3720-3820 range against the US dollar in the short term.
Money market remained highly liquid throughout the month, supported by a combination of Repo maturities and government bond redemptions that injected substantial shilling liquidity into the banking system. Approximately UGX 2.4 trillion was released through bond maturities, significantly boosting system liquidity and ensuring comfortable funding conditions across the market. As a result, overnight lending rates largely remained in single digits for most of the month, reflecting the ample availability of funds among financial institutions. The abundance of liquidity prompted the Bank of Uganda to undertake liquidity management operations, including the sale of Bank of Uganda bills and 7-day mop-up repos, through which excess liquidity was absorbed from the market. Overall, liquidity remained more than adequate to meet funding requirements, supporting smooth interbank market activity and helping anchor short-term interest rates at relatively stable levels.
The Kenya shilling remained broadly stable against the US dollar throughout the month, trading within a narrow range of 129.20-129.60 and ending the period largely unchanged. Balanced market conditions, supported by adequate foreign currency inflows and manageable demand, enabled the currency to maintain stability despite intermittent buying interest from various market participants. The pair continues to trade within the established 129.20/129.60 range and is expected to remain broadly stable in the near term, supported by balanced market flows and an improved external position.
Oil prices ended the month significantly higher, with Brent crude closing at approximately USD 89 per barrel compared with around USD 82 at the beginning of the month. The increase came despite periods of volatility and was primarily driven by persistent geopolitical tensions in the Middle East, particularly concerns surrounding Iran and the security of the Strait of Hormuz, a critical global transit route for crude oil shipments.
Although prices retraced some gains toward month-end, the broader trend remained firmly upward. Market participants continued to closely monitor developments between Iran and the United States, with limited progress reported on diplomatic efforts aimed at easing tensions. In addition, tanker traffic through the Strait of Hormuz remained below pre-conflict levels, underscoring ongoing concerns about potential supply disruptions and maritime security risks.
The market also weighed the impact of tighter U.S. sanctions on Iran and reports suggesting that the U.S. administration was not pursuing a return to the short-lived ceasefire arrangement reached earlier in the year. Geopolitical uncertainty in the Middle East remains the dominant driver of sentiment, with continued concerns over the security of the Strait of Hormuz representing a key upside risk to oil prices. Consequently, energy markets are expected to remain highly sensitive to developments in the region in the weeks ahead.
Gold prices rose by approximately 15% during the month, climbing from USD 4,020 at the start of the period to USD 4,612 by month-end, as investors awaited closely watched remarks from Federal Reserve Chair Kevin Warsh at the Jackson Hole Economic Policy Symposium for further guidance on the future path of U.S. interest rates.
The precious metal earlier touched a three-month high near USD 4,700 per ounce, supported by concerns surrounding U.S. fiscal policy and Treasury initiatives aimed at supporting longer-dated bonds, both of which boosted safe-haven demand. However, gold struggled to extend its rally as investors adopted a cautious stance ahead of Chair Warsh’s speech and potential policy signals from the Federal Reserve.
The euro traded modestly firmer against the US dollar, with EUR/USD rising to 1.1646 as markets weighed hawkish signals from the European Central Bank against persistent inflationary pressures in the United States. Investor attention remained focused on the Jackson Hole symposium, where comments from Federal Reserve Chair Kevin Warsh were expected to provide further direction for global currency markets.
Meanwhile, the British pound traded with a slight positive bias against the dollar, although gains were capped by uncertainty surrounding the policy outlooks of both the Bank of England and the Federal Reserve. Sterling initially found support from resilient UK economic data and improving risk sentiment, while broader dollar softness linked to concerns over the U.S. fiscal outlook also underpinned GBP/USD. By the end of the week, the pair was trading at 1.3586.
