This turned out to be a week of struggle by the Uganda shilling to confront the strong US dollar amid its sustained scarcity of supply. On Friday, its margin of loss narrowed at 3,695.05 buying and 3,705.05 selling, as per data obtained from BoU.

The local currency has been weakening steadily since December 19, 2024, when the dollar was quoted at 3,633.55 buying and 3,645.55 selling. The shilling’s depreciation peaked mid-week, at 3,707 selling.

However, remittances on account of seasonal diaspora during the festive season brought a ray of hope and briefly slowed down the decline. Lower dollar demand during this period contributed to this brief stabilization.

Dollar Demand Fuels Volatility

At commercial banks, the shilling opened the week at 3,680/3,690, with high dollar demand quickly driving it to 3,707/3,717.

Experts said this was mainly on account of the energy sector’s demand, which later spilled into the manufacturing sector when remittance inflows started to dry up.

Rahmah Masagazi, the Head of Sales at Absa Bank Uganda, explained:

“There was limited dollar supply from remittances and agri-commodities, though this was overshadowed by strong demand.”

The local currency is expected to face more pressure in the short run with most corporate businesses returning to work after the holiday break. The day’s trading levels could range between 3,675 and 3,730, Masagazi projected.

Treasury Bonds See Strong Interest

During the week, BoU carried out a Treasury Bond auction, offering bonds for two-year, five-year, and 15-year tenures. The securities hence saw their rates rise to 16.0%, 16.75%, and 17.5% respectively from their previous rates of 15.75%, 16.0%, and 16.75% accordingly.

A total of 791.17 billion shillings, representing 80% of the auctioned amount, was accepted, with this showing good investor appetite.

Global Trends Add to the Pressure

The euro is stuck at 1.03 dollars, now for the third consecutive day running, while there has been some pressure on the currency, now stretching for several months. Factors have been uncertainties in Europe’s economic performance, geopolitics, and interest rates favorable to the dollar.

The impending swearing-in of US President-elect Donald Trump has also created uncertainty in the global financial markets. The proposed tariffs on imports and expected inflationary pressures in the US by Trump may have a ripple effect on developing countries like Uganda, particularly those with direct trade links with the US.

Sterling became the weakest among developed currencies that fell by 0.97% to 1.2239 dollars, down to its weakest level since November 2023 on growing concerns over the increasing cost of borrowing for the nation and attempts toward deficit control.

Oil Price Surges Amid Sanctions and Winter Demand

Crude oil prices reached a three-month high, with Brent crude trading around 78 dollars per barrel, up more than 5% this month.

Stricter sanctions on Russian and Iranian oil have pushed countries like China and India to increase crude purchases from alternative regions. This shift, combined with higher demand in winter-affected areas, has tightened global oil supplies.

“Stricter sanctions coupled with higher winter demand are driving prices upwards, which could affect net oil importers like Uganda,” Masagazi noted.

Regional Currency Stability

Closer to home, the Uganda-Kenya currency market remained stable, with the Kenyan shilling trading at 28.55 against the Ugandan currency.

Looking Ahead

With the continuous pressures that have been facing Uganda’s shilling, BoU and other financial stakeholders will have to work out both local challenges and global uncertainties. A stronger focus on managing dollar demand and encouraging increased remittance flows may help stabilize the currency in the weeks ahead.

For now, businesses and consumers alike brace for possible fluctuations as the market adjusts to the shifting dynamics.