Uganda Shilling Registers Gains Supported By Exports, Offshore Investors

By Richard Nsubuga, Head of Trading Absa Bank Uganda

The Uganda shilling registered gains during the week with support seen coming from strong dollar inflows from commodity exporters and offshore investors amidst demand from corporates who preferred to reserve their shilling liquidity as they pay their end of Financial Year tax obligations.

Additionally, positive headlines coming out of the Middle East signaling a potential end to the war drew investor confidence giving the shilling further boost during the week. The currency pair was quoted at 3640 / 3650 levels stronger than last week’s close of 3765 / 3775 on Friday morning. Looking ahead, the shilling is projected to trade within a wider range of 3600–3720 in the near term.

Money markets were liquid throughout the week prompting the Central Bank to conduct Open Market Operations on Thursday through the sale of Bank of Uganda bills and 7-day mop up repo. Overnight rates averaged 9.56% during week, reflecting elevated liquidity levels in the system.

Yields at Wednesday’s Treasury bill auction were broadly flat as government mobilized final domestic financing this Financial Year. A total of Ugx 266 billion in Face Value was accepted, with the 364-day, 182-day and 91-day maturities clearing at 12.000%, 10.713% and 10.500% respectively.

The USD/KES pair was stable during the week trading within 129.20 – 129.80 range in a session dominated by balanced liquidity. In the near term, the Kenya shilling is expected to trade within the 129.20–130.20 range.

Brent crude hovered around $79 per barrel on Friday and was set for a weekly decline of approximately 10%, as improving shipping conditions in the Strait of Hormuz boosted market confidence. This followed the implementation of the US–Iran interim peace accord, which effectively ended a prolonged conflict that had caused one of the most severe supply disruptions in history.

The US Central Command confirmed that restrictions on maritime traffic to and from Iranian ports and coastal waters had been lifted. At the same time, the Joint Maritime Information Center advised vessels navigating the strait to remain closer to Oman’s coastline to mitigate risks associated with potential mines.

Crude shipments that had previously been stranded began moving out of the region on Thursday, while Kuwait signaled plans to ramp up production. Consequently, oil prices have surrendered nearly all gains recorded since the conflict began in late February.

The dollar index remained firm near 100.8, trading at its strongest level since May 2025 as markets continued to price in the possibility of further rate hikes following hawkish signals from the Federal Reserve.

Although the Fed left interest rates unchanged on Wednesday, in line with market expectations, updated projections suggested that roughly half of Federal Open Market Committee (FOMC) members anticipate at least one rate increase in 2026.  The central bank also revised its inflation outlook upward, reflecting the economic implications of the Middle East conflict.

In currency markets, the British pound weakened toward $1.32, its lowest level since April 3, after the Bank of England voted 7–2 to keep interest rates unchanged at 3.75%, in line with expectations.

Policymakers struck a cautious tone, highlighting uncertainty surrounding the economic fallout from the energy shock linked to the Middle East conflict. The Bank reiterated its readiness to respond to inflationary pressures, with Governor Andrew Bailey noting that risks stemming from the Iran situation remain despite the ceasefire and tentative agreement.

The euro also came under pressure, slipping below $1.15 to its lowest level since late March, as broad dollar strength dominated sentiment following the Fed’s more hawkish stance. This movement came despite recent rate increases by both the European Central Bank and the Bank of Japan, with markets continuing to anticipate at least one additional ECB hike before the end of the year. Gold prices declined below $4,200 per ounce on Friday, reversing earlier gains from the week. The drop reflected the stronger dollar and firmer interest rate outlook, which outweighed the supportive effect of easing geopolitical risks after the US–Iran agreement, as lower oil prices helped temper inflation concerns