The Uganda shilling lost ground during the week weighed down by robust demand for hard currency from local market participants, offshore investors and renewed tensions coming out of the Middle East in the recent hours of the day.
According to Absa Bank Uganda weekly market report, the shilling closed the day trading at 3670 / 3680 levels compared to the week’s opening levels of 3645 / 3655. Despite shilling’s vulnerability, the local unit 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 6.75%-10.00% range. To manage the excess funds, the Central Bank was in the market on Thursday mopping out a total of UGX 2.0 trillion through issuance of Bank of Uganda bills and the 7-day repo.
The USD/KES pair was stable during the week trading within 129.00 – 129.50 range in a session dominated by balanced liquidity. Looking ahead, the Kenya shilling is expected to trade within the 129.20–129.90 range as month end flows come into play.
Brent crude fell below $76 per barrel on Friday, extending losses from the previous session as reports suggested that the US and Iran would continue diplomatic negotiations despite a recent escalation in tensions that disrupted energy shipments through the Strait of Hormuz.
Nevertheless, the international benchmark remained on track to gain nearly 6% for the week, supported by heightened geopolitical risk after US forces conducted strikes on Iranian targets over two consecutive days in response to attacks on vessels transiting Hormuz. Tehran subsequently retaliated with strikes on US military bases across the region, raising concerns about potential disruptions to global oil supplies.
The US dollar index slipped toward 100.5 on Friday, marking its third consecutive daily decline, as reports indicating continued diplomatic engagement between the US and Iran reduced demand for the greenback’s safe-haven appeal.
Meanwhile, softer oil prices helped alleviate inflationary pressures, reinforcing expectations of a more measured monetary policy stance. Despite this, markets continue to price in the likelihood of at least one additional interest rate increase from the Federal Reserve later this year.
The British pound strengthened to $1.343, its highest level since mid-June, and recorded a second straight week of gains against the US dollar. Sterling was supported by growing expectations that the Bank of England will tighten monetary policy later this year, with money markets fully pricing in at least one rate increase and assigning around a 25% probability to a second hike.
The euro advanced to $1.144, rebounding from its one-year low recorded in June, as markets increasingly expect additional interest rate increases from the European Central Bank. Following the ECB’s first-rate hike since 2023 at its June meeting, investors are now pricing in two further increases over the next 12 months, with a September move seen as the most likely.
Gold held steady above $4,100 per ounce on Friday and was poised to end a turbulent week largely unchanged, as investors weighed ongoing developments in the Middle East and evaluated their potential implications for inflation trends and the future direction of monetary policy.
