Importers' dollar demands continue to weaken shilling

BUSINESS | FINANCE

The Uganda shilling weakened and breached the key resistance level and traded above the 3,600 by close of business on Friday.

The local unit was quoted at 3,637/3,647 buying and selling respectively. This is weaker than 3,624/3,634 of the morning session.

Stephen Kaboyo of Alpha Capital Partners noted that the weakening of the shilling was driven by the surge in demand from importers and interbank. Trading was in the range of 3620/3630.

In interbank money market, overnight funds traded at 7%, while one week funds traded at 8%.

"In the fixed income market, treasury bills yields continued on the downward trajectory and came out at 9.039%, 9.241% and 9.543% for 91, 182 and 364 days. The offer of 130billion, lower than usual, was downsized due to liquidity considerations," Kaboyo said.

In the regional currency markets, the Kenya shilling was stable despite the political turmoil, largely supported by significant diaspora remittances and horticulture flows.

In international currency markets, the dollar lost ground following the release of the Federal Reserve minutes that highlighted concerns about the low inflation environment in the US.

"Shilling forecast indicate underlying depreciation pressures mainly from importers positioning for end of year imports. The demand is likely to continue playing out even as corporates stay out on account of mid-month tax payments," Kaboyo added.