The Uganda shilling traded within a relatively narrow range during the week, posting a modest depreciation against the US dollar as sustained corporate demand outweighed available hard currency inflows, according to Absa Bank weekly market report.
Early in the week, demand from the energy and manufacturing sectors and the interbank exerted pressure on the local unit. However, continued inflows from commodity exporters and remittances, coupled with subdued corporate demand in the latter part of the week, helped the shilling recover some of its losses. The local currency closed the week at 3715/3725, compared to 3705/3715 at the start of the week. Looking ahead, the Uganda shilling’s performance is expected to remain dependent on the balance between corporate foreign currency demand and inflows from exporters and remittances. In the near term, the unit is projected to trade within the 3650-3820 range against the US dollar.
Money market conditions remained largely liquid throughout the week, supported by government cash releases and ample system liquidity. Overnight lending rates averaged within the single-digit range, reflecting comfortable liquidity conditions across the banking sector. The Bank of Uganda largely remained on the sidelines for most of the week, refraining from conducting open market operations despite abundant liquidity.
However, towards the end of the week, improved liquidity conditions driven by repo maturities prompted the Central Bank to intervene through the sale of Bank of Uganda bills and a 7-day mop-up repo, absorbing UGX 727.6 billion from the market. Overall, liquidity remained sufficient to support interbank market activity, with short-term interest rates remaining relatively stable and well anchored.
The Kenya shilling was slightly weaker during the week, broadly driven by interbank activity. The shilling was seen trading at 129.45/50 on Friday compared to Last week’s closing 129.20 / 129.30. The currency pair continues to trade within a well-defined 129.20/60 range and remains broadly anchored in the near term.
WTI and Brent crude posted solid gains this week, rising 1.8% and 2.5% respectively, as escalating Middle East tensions drove a sustained geopolitical risk premium into oil markets. Concerns over potential supply disruptions intensified following a UAE-Iran dispute and reports that US actions were constraining Iranian crude exports, supporting prices throughout the week. Additional bullish momentum came from stronger refinery demand, with US refiners increasing crude consumption and Asian refiners purchasing more US cargoes for September delivery.
The rally peaked on Thursday, when Brent climbed to $93.78 per barrel, its highest level since July 24, after five consecutive days of, with some market participants beginning to price in upside risk toward $100/bbl. Both benchmarks eased slightly on Friday as profit-taking set in and markets welcomed some relief from inflation concerns linked to higher energy prices. Meanwhile, discussions between Iraq and Saudi Arabia on Iraq’s OPEC production allocation added another supply-side factor for traders to monitor.
The US Dollar Index initially came under pressure after the US Treasury announced plans to increase buybacks of longer-dated government bonds, which supported risk appetite and weighed on the haven, however the unit managed to reverse its negative trajectory after economic data released yesterday painted a resilient picture of the US economy, with Initial Jobless Claims falling to 206K from 209K previously, beating market expectations of 210K, alongside the Philly Feb Business Index which rose to 47.4 from 41.4, significantly outperforming the consensus forecast of 25.0. The US dollar opened at 99.8350, weakened to a low of 98.5570 and closed at 98.8950.
The euro edged higher for the better part of the week as risk sentiment continued to sway in its favor. On the macro front, German Producer Price data surprised to the upside, with PPI YoY accelerating to 3.0% from 1.8% previously, exceeding market expectations of 2.7%. Meanwhile, PPI MoM rose 1.1% following a -0.3% print in the previous month and came in above the consensus forecast of 0.7%. The euro opened the week at $1.1580 and ended the week up at $1.1706. The British Pound extended its gains, building on its recent upward momentum as markets continued to digest the UK’s latest robust inflation print. GBP/USD remained well supported as investors reassessed the outlook for UK interest rates and inflation. Sterling opened at $1.3544, climbing to a high of $1.3659.
Gold delivered a strong performance this week, with spot prices rising approximately 3.8% from $4,415.99 per ounce at the start of the week to $4,584 per ounce on Friday, marking its third consecutive weekly gain. The rally was driven primarily by the US Treasury’s surprise announcement on Wednesday that it would increase buybacks of long-dated government bonds. The move pushed Treasury yields and the US dollar sharply lower, triggering a 3.2% single-day surge in gold and reinforcing its appeal as a store of value amid growing concerns about US fiscal and policy uncertainty.
After consolidating around $4,500 per ounce on Thursday, gold extended its gains on Friday following comments from Treasury Secretary Bessent indicating a willingness to expand the buyback program. Investor demand remained robust, with gold ETFs recording their largest daily inflow in 11 months, adding roughly 583,500 ounces (about $2.6 billion) in a single day. While ongoing sales from Russian gold reserves provided some modest supply-side pressure, market sentiment remained firmly bullish, supported by improving technical momentum and analyst expectations that a break above $4,650 per ounce could open the door to further upside.
