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Shilling in free fall as dollar gains

By Vision Reporter

Added 6th June 2010 03:00 AM

THE Uganda shilling is in a free fall as the US dollar made a dramatic gain of sh20 in the local foreign exchange market Friday.

THE Uganda shilling is in a free fall as the US dollar made a dramatic gain of sh20 in the local foreign exchange market Friday.

By Macrines Nyapendi

THE Uganda shilling is in a free fall as the US dollar made a dramatic gain of sh20 in the local foreign exchange market Friday.

The local unit opened the morning trading session posting at 2,260/2,280 against the green buck from the previous day’s 2,240/2,260 for buying and selling against the dollar.

The shilling also depreciated against the pound sterling, euro and other regional currencies. Against the pound, the local unit was posted at 3,300/3,380 for buying and selling up from 3,120/3,251 and the euro was trading at 27,50/28,00 from 2,680/27,50 on Wednesday.

Dealers attributed the development to the high demand for dollars from corporate buyers that was not backed up by supply and euro zones financial woes that are shaking currencies and stock markets across the globe.

Shamir Manji, a dealer at Hydery Forex said, “The precariousness of the market is keeping us on our toes and I don’t know how long we can sustain it.”

“The dollar is very strong against all major traded currencies and has been boosted by the presence of corporate buyers. Foreign exchange rate stability remains in balance as euro zone fears continue to mount,” he said.

The shilling’s lowest trading was in June last year when it traded at 2280/2320 against the dollar, 3500/3650 against the British pound and 3200/3300 against the euro respectively.

By the end of last year, the shilling had appreciated and was trading at the 1900-level.

“Uganda is not spared from the woes of Europe’s PIIGS (Portugal, Ireland, Italy, Greece and Spain). When the macro news went around, stocks fell and exchange rates became volatile,” Manji added.

PIIGS is the acronym that the financial market experts in Europe use to refer to the five debt ridden countries.

The prevailing exchange rates and price level movements indicate that the demand for dollar has surpassed the supply.

According to Eric Roseman, an analyst and columnist with Commodity Trend alert, “The nucleus of currency instability are the highly indebted sovereign borrowers around the world who even after bailouts still try to secure financing while the deflationary noose tightens.”

Manji said, “We have noticed the emergence of currency investors in the local forex market. Some Ugandans are developing a culture of trading in currencies for profits in the forex markets.”

The economic effects of a weak currency boosts exports but can negatively affect the performance of all sectors in the long-run.

By Friday morning, several bureaus had halted trading of the dollar claiming that the currency was too risky to invest in. One dealer said; “I don’t want to take chances with it.”

Shilling in free fall as dollar gains

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