The Uganda shilling experienced another volatile and bearish week against the US dollar, extending its recent depreciation trend.
According to Absa Bank’s weekly market report, having opened the week trading at 3895 / 3905, the shilling weakened to near all-time lows of 3945 / 3955 on Friday, reflecting about 8.3% year-to-date depreciation. Dollar demand was mainly seen coming from the manufacturing, energy and telecommunications sectors, which has also been compounded by offshore participation.
Business reporting has linked the broader depreciation trend to elevated importer demand, rising energy costs and uncertainty arising from the Middle East conflict, while noting that remittances and export proceeds have not always been sufficient to offset demand for hard currency. Bank of Uganda raised the cash reserve requirement ratio for commercial banks by 250 basis points to 13.50%, which is expected to tighten liquidity in the domestic market.
Nevertheless, renewed interbank dollar sales, stronger commodity export receipts, remittance inflows, and possible intervention by the Bank of Uganda could provide support. In the near term, the currency is expected to trade within the UGX 3880 – 4000 range against the US dollar, with risks remaining tilted toward further depreciation.
Money markets remained liquid throughout the week, with overnight funding rates rising from 8.75% on Monday to 9.54% on Tuesday, before easing slightly to 9.50% on Wednesday and 9.21% on Thursday. The Bank of Uganda actively managed the excess liquidity through a three-day mop-up repo on Monday, followed by the sale of Bank of Uganda bills and a seven-day repo on Thursday.
The central bank also announced a 250-basis-point increase in the Cash Reserve Ratio to 13.50%, a measure expected to withdraw structural liquidity from the banking system and potentially place upward pressure on short-term funding rates. Secondary market activity remained relatively subdued, with most participants staying on the sidelines.
Nevertheless, pricing maintained a firmer bias toward the end of the period as offers gradually improved. Overall, liquidity conditions remained comfortable, but the increase in the Cash Reserve Ratio signals a tighter monetary stance and could moderate excess liquidity, raise interbank funding costs, and support firmer yields across the government securities market in the near term.
The Kenyan shilling experienced modest volatility during the week but remained broadly stable against the US dollar, trading within the 129.20– 129.90 range in the past few days. In the near term, USDKES is expected to trade within the 129.40–130.00 range, with the 130.00 level remaining an important resistance point.
Oil prices ended a volatile week lower, with WTI declining 1.3% to $100.07 per barrel and Brent falling 2.9% to $102.64 per barrel. Both benchmarks initially rallied after drone strikes shut Saudi Arabia’s East-West pipeline, while increased Houthi activity around the Bab al-Mandeb Strait heightened concerns about disruptions to key regional supply routes. These risks drove WTI to a four-month high of $105.83 per barrel and Brent to $108.75 per barrel on Tuesday.
However, the rally reversed sharply from Wednesday after Saudi Aramco indicated that approximately half of the pipeline’s capacity could be restored within days, with full operations expected within six weeks. The prospect of recovering Saudi supply reduced the geopolitical risk premium and triggered three consecutive sessions of selling. Despite remaining close to $100 per barrel, both benchmarks closed below their opening levels, with Brent recording the steeper decline as Middle East supply concerns eased.
Gold ended a volatile week approximately 2.0% higher at $4,387.89 per ounce, recovering strongly after falling to around $4,264 earlier in the week. Bullion initially came under pressure as surging oil prices heightened inflation concerns and reinforced expectations of tighter monetary policy. Volatility intensified on Wednesday after the Federal Reserve delivered its first interest-rate increase since 2023, raising rates by 25 basis points and signaling that further hikes remained possible.
Gold initially rallied ahead of the decision but reversed as the Fed’s hawkish stance pushed Treasury yields higher. The metal rebounded sharply on Thursday and extended its gains on Friday after oil prices retreated, easing inflation fears and allowing bond yields to decline. Investor demand also remained supportive, with gold-backed ETFs recording eight consecutive days of inflows and total holdings reaching their highest level since March. Despite the positive weekly close, the possibility of further Fed tightening remains a key headwind, while the unusually strong ETF accumulation amid recent price pressure presents both underlying support and a potential reversal risk.
Both the euro and sterling weakened notably against the US dollar this week, with EUR/USD falling 1.01% from 1.1599 to 1.1482 and GBP/USD declining 1.14% from 1.3524 to 1.3370. This was largely driven by the Federal Reserve’s 25-basis-point interest-rate hike, its first since 2023, accompanied by hawkish guidance indicating that another hike could follow later this year. The decision strengthened the dollar and pushed the US 10-year Treasury yield above 5%, reinforcing the greenback’s yield advantage.
EUR/USD briefly fell to a one-month low of 1.1465 and moved below its 100-day moving average as reduced expectations for an October ECB hike, French political uncertainty, and a narrowing euro-area current account surplus added to the pressure. GBP/USD underperformed slightly, reaching a weekly low of 1.3359 after the
Bank of England held rates unchanged in a 6-3 vote, prompting markets to scale back expectations for further tightening. Elevated UK gilt yields and uncertainty surrounding the upcoming Budget also weighed on sterling. Looking ahead, the dollar’s yield advantage is likely to remain the main headwind for both pairs, while ECB policy expectations and French political developments will be important for the euro, and UK fiscal risks and gilt-market pressures will remain key drivers for sterling.
