The Uganda shilling surged against the dollar to close the week at the 3455/3465 levels from the opening of 3487/3497, a consistent and spectacular performance throughout the week that saw significant portfolio inflows that were sold directly into the spot market, marking the shilling’s strongest level in 9 years, last seen in October 2016.

According to Absa Uganda weekly Shilling update report, the US dollar selling pressure snapped the 3480 currency-pair support mark, prompting a constructive price action towards the 3450 level.

“Offshore investors purchased a good chunk of the 15-year treasury bonds, thus generating shillings from the sale of their hard currency mid-week. The local unit has appreciated by approximately 5.5% year-to-date against the US dollar, buoyed by sustained inflows from commodity exports, diaspora inward remittances, and portfolio investments. The shilling is still projected to trade range-bound with a bias to a consolidative price pattern and within a revised price range of 3430-3500 in the near term,”

On Wednesday, yields from the Treasury Bond auction on Wednesday were broadly in line with market expectations, with the benchmark 2-year, 5-year, and 15-year tenors clearing at 15.750%, 16.20%, and 17.650%, respectively. The Ministry of Finance accepted a substantial UGX 2.737 trillion in face value, significantly surpassing the auction offer size of UGX 990 billion by 276%. This strong oversubscription underscores prevailing liquidity conditions in the money markets and a relatively stable macroeconomic backdrop, which continues to support robust investor demand for local debt instruments. Notably, offshore interest was evident in the auction, as reflected by the pronounced FX inflows observed in the interbank market this afternoon. Yields are expected to remain elevated in the near term, due to the strong appetite by the government to borrow from the domestic market.

Richard Nsubuga, the Ag. Head of Trading at Absa Bank Uganda said: “The government tapped UGX 2.594 trillion in cash from the domestic market following the settlement of treasury bonds that were sold through the central bank on Thursday. The money markets remained liquid despite the huge withdrawal from the market, which prompted the central bank to announce its participation in the market to mop up the excess liquidity through a 7-day repo. The interbank overnight and one-week rates averaged at 9.58% and 9.99%, respectively, during the week.”

The Kenya shilling remained stable this week as well, still exchanging in the same narrow range of 129.00 – 129.400 on the back of balanced trading activity that saw dollar inflows sufficiently match off the corporates and interbank demand. The outlook has no fundamental market changes that will see the shilling trade out of the current sideways price pattern in the near term.

The US dollar index (DXY) weakened on Friday to trade below 98.00 against a basket of six world currencies as the suspension in federal operations risks added further pressure on the dollar due to market expectations of delayed release of key economic data. This came as a stopgap funding package in Washington failed, and the White House instructed government agencies to “execute their plans for an orderly shutdown” – the first in seven years.

The US government shut down on Wednesday after a deadlocked Congress failed to reach a deal on funding. The immediate effect of a partial US government shutdown is that the market is now uncertain about the release of data critical to assessing the health of the US economy, including Friday’s non-farm payroll numbers, as this may be delayed.

The Pound Sterling (GBP) traded to the highs of 1.3525 on Wednesday but fumbled into snapping the four-day winning streak, backsliding on Thursday, and trading just above 1.3430 on Friday early morning as the market players weigh on the impact of the US government shutdown.

Following a technical price rejection from the 1.3500 handle mid-week, the sterling slightly drifted lower into familiar chart territory, consolidating between the 1.3400 -1.3450 range as markets took an extended pause to interpret and weigh on how long the US government’s federal shutdown will last, and what the economic impacts could be.
On Friday, the United Kingdom (UK) side of economic data did not have any meaningful releases; therefore, investors were left grappling with sentiment about missing the latest US Nonfarm Payrolls (NFP) labor figures that were supposed to be released today in the afternoon.

Oil prices (Brent Crude) were trading at $64.60 per barrel, more than 8% down for the week, and as prices seemed to be on course to book their steepest decline in four months following reports that OPEC+ was about to extend its production boost for another month at its Sunday meeting.

Therefore, Oil is heading into an interesting weekend as leading OPEC+ members decide how much more idled capacity they wish to return to a market already burdened by expectations for a hefty surplus. OPEC+ is engaged in a price war to recapture market share lost to rivals, and members have already been aggressive in returning idled barrels.

Gold prices reached a new all-time high as the US began a government shutdown mid-week, rising to touch $3,895.38 an ounce. The precious yellow metal has soared more than 46% this year, putting it on track for the biggest annual gain since 1979. The jump in gold prices has been supported by central-bank buying and rising holdings in gold-backed exchange-traded funds as the Federal Reserve resumed interest-rate cuts.

Gold has also drawn strong haven demand amid lingering concerns about the central bank’s independence. In early trading on Friday, gold spot prices had pared the intra-week move, retreating to the $3,840 level as the US dollar pushed higher and investors booked profits after a five-day gold price rally that saw it reach fresh records. Market players also sought clues on the US economy as the government shutdown delayed key data.