The Uganda shilling strengthened modestly last week, supported by robust hard currency inflows from commodity exporters, remittances, and non-governmental organizations, which outweighed prevailing demand for foreign exchange from corporate entities.
According to Absa Bank Uganda weekly market report, the local unit was quoted at 3725 / 3735 on Friday morning, compared to 3745 / 3755 at the close of the previous week. Market sentiment also benefited from signs of de-escalation in Middle East tensions, providing additional support to the shilling during the period.
Going forward, the currency’s trajectory is expected to remain driven by corporate demand dynamics and developments in the Middle East. In the near term, the shilling is anticipated to trade within the 3650 – 3820 range against the US dollar.
The market was awash with liquidity with overnight and one-week rates averaging within 6.75%-10.00% range. The Bank of Uganda continued its liquidity management operations, mopping up UGX 1.293 trillion from the market through their Open Market Operations tools.
Yields at Wednesday’s Treasury bill auction edged lower on the 182-day and 364-day maturities dropping 15bps and 50bps respectively driven by strong investor appetite on the back of heavy liquidity in the domestic money markets.
The 182-day and 364-day maturities cleared at 10.249% and 11.00% respectively compared to previous auction levels of 10.400% and 11.501%. The 3-month paper was unchanged at 10.002%. The Ministry of Finance accepted bids totaling UGX 381.086 billion in face value compared to offered size of UGX 350 billion, representing an acceptance rate of 109%, underscoring robust investor appetite amid the prevailing liquidity conditions.
USDKES traded lower over the week, settling around 129.35/40, as increased dollar inflows from NGOs, parastatals, remittances, and offshore investors ahead of next week’s IFB auction outweighed demand. Corporate demand was mainly driven by manufacturers and selected counterparties covering Government-to-Government cargo obligations. The 129.25-35 area continues to provide strong support, with consistent buying interest emerging at those levels in recent sessions.
Brent crude climbed and traded at around $83 a barrel on Friday, extending gains from the previous session as escalating tensions in the Strait of Hormuz heightened market concerns and raised new uncertainties about plans to fully restore access to the critical maritime passage.
Reports suggested that Iran targeted what it called “hostile targets” in the strait following explosions near Qeshm Island. Under a proposed Iran-Oman framework for managing the waterway, Tehran is reportedly seeking to bar US and Israeli vessels from transiting the strait and require nations considered hostile to pay compensation before being allowed passage.
The US Dollar Index traded around 99.95 on Friday, remaining broadly stable after posting gains in the previous session, as market participants adopted a cautious stance ahead of the release of the closely watched July employment data. The report is expected to offer important clues about the resilience of the US labor market and help shape expectations for the Federal Reserve’s next policy moves.
At the same time, a growing number of Fed policymakers have signaled support for additional monetary tightening amid persistent inflation concerns, with investors largely anticipating a 25-basis-point interest rate increase in September.
The euro traded near $1.152 on Friday, easing slightly from the seven-week high of $1.155 reached on Wednesday, as investors weighed the potential impact of shifting energy market dynamics and the outlook for global monetary policy.
Meanwhile, the British pound slipped to around $1.344, with market sentiment remaining cautious amid uncertainty surrounding the ongoing Iran-Oman negotiations and whether they will pave the way for the resumption of energy shipments through the strategically important Strait of Hormuz.
Gold prices held above $4,250 per ounce on Friday morning, maintaining their rally and hovering near a seven-week high, as easing energy costs reduced expectations that the Federal Reserve would need to raise interest rates later this year. Market sentiment was supported by signals from US officials that efforts are underway to secure a ceasefire with Iran and establish measures to safeguard trade routes through the Persian Gulf. These developments have contributed to a sharp decline in fuel prices since the beginning of August, helping to ease concerns that higher energy costs could fuel broader inflationary pressures and push consumer prices higher.
