Shilling gains slightly as dollar demand drops

The Ugandan shilling slightly gained against the dollar and other major currencies on Thursday as corporate demand for dollars subsided.

By Thursday afternoon, the local unit was trading in the range of 3,608.08/3,618.08 slightly up from Wednesday's close of 3,609.22/3,619.22 buying and selling respectively.

"There's a drop of demand for the dollar from corporates which has supported the local currency," said Timothy Kabanda, a trader in Bunga.

He added that most companies are paying their mid-month taxes. This explains why may be using up some of the shilling reserves that would be funding dollar purchases.

Information published by Bank of Uganda on 28th February 2017, shows that the Uganda Shilling appreciated by 1.2 percent against the United States Dollar from Ush 3,630.22/US$ in the Base Period to Ush 3,586.69/US$ as at the end of February 2017.

Last week, the Uganda Shilling held firm in a short trading week with markets expecting a knee jerk reaction following Bank of Uganda (BOU)'s rate cut that was likely to stimulate demand for forex.

 "Outlook point to mild weakening of the shilling as pockets of demand are expected to emerge as markets opened up after a long Easter weekend," Stephen Kaboyo of Alpha Capital Partners said.

Adding that, in international currency markets, the dollar lost ground against major currencies following US President Trump remarks to Wall Street Journal that the US dollar had kept a bullish tone and is too strong and that his preference would be to keep interest rates low in the US.

Furthermore, BOU cut its benchmark rate by 50bps to 11%, citing dismal growth in the first two quarters of the fiscal year that gave a bleaker view of the economy.

In the money market, overnight rates averaged 10% while 1 week was 12%.

In fixed income market, yields dropped across all tenors, trading at 10.112%, 11.656% and 13.809% for 91,182 and 364 day treasury bills.