Importers' demand for Dollars weakens the Shilling

The Uganda Shilling traded stable in the first half of the trading week and then broke out of the short term trading range during the week ending 12 July 2019.

This was on account of a pick in demand mainly from importers as the market remained relatively short on dollars.

At the close of the week, the Uganda Shilling traded in the 3690/3700 as compared to opening levels of 3680/90 buying and selling respectively.

In the interbank money market, overnight funds priced at 7% while one-week funds at 10%.

In the fixed income market, a 5 year and 15-year bonds were issued with amounts of 130 billion and 140 billion respectively.

The 5 year with a coupon of 14%, the yield to maturity at the cut-off price was 15.050%. the total bids amounted to 119 billion, registering an under subscription. The 15-year bond with a coupon of 14.25%, its yield to maturity was 14.350% and the total bids accepted were over the offered amount by 9 billion.

In the regional currency markets, the Alpha Capital Markets report indicated that both the Kenya and the Tanzanian shillings came under pressure due to increased dollar demand from the oil sector and merchandise importers.

The Kenyan money market was awash with liquidity which exacerbated the currency weakness. KES was trading at 102.85/103.05 while TZS quoted at 2294/2304.

However, by the close of business on Friday, the Shilling was quoted at 3,689.79/ 99. This was slightly weaker than the opening session of 3,687.6397.

"Outlook for the Shilling is likely to hold at the current levels as FX market activity slows down on mid-month tax payments that are expected to be larger than usual in the first month of the new fiscal year," Stephen Kaboyo of Alpha Capital Partners said.

In the international currency markets, the US Dollar was steady and continued to gain traction against the major currencies after stronger than expected US inflation data tempered the prospect of an aggressive Federal Reserve interest rate cut at its upcoming meeting of July 30-31st.

Markets are fully priced for a quarter percentage point as US policymakers seek to support the slowing economy.

The Euro was quoted at 4,151/4,162 buying and selling.