Fragile economy, rising debt levels to limit the Uganda shilling appreciation potential

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The Uganda shilling was broadly stronger, oscillating in a narrow range amid receding dollar demand.

The supply side was active with flows offering support. The Uganda shilling lost ground on Friday after being resilient through the week against the US dollar. The local currency was traded at 3662.52/3672.52 compared to 3660/3670 last week.
While in other news the monetary settings that kept an accommodative stance reinforced the Central Bank willingness to support the economy that has been dented by the COVID effects.



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In the local fixed income markets, bonds firmed alongside the shilling .The local markets continued to be supported by the global economic developments, with monetary and fiscal policies in developed markets remaining highly expansionary.

In the current play, the shilling is an attractive carry trade offering good returns against zero rates in the US and Europe.



In the regional markets, the Kenya shilling was on the edge, expected to come under pressure due to month end demand from importers. KES was quoted at 109.45/65.

In the global currency markets, the US dollar traded shy of recent highs after its back to back gains in two weeks as upbeat data bolstered expectations that the US economy would recover from the pandemic faster than most of its peers.



Outlook point to a stable unit as demand remains subdued mainly on account of low business activity. In the short to medium term, the fragile economy and high levels of debt which continue to rise will limit the shilling appreciation potential.

The writer works with Alpha Capital Forex Bureau: For competitive Forex Rates VISIT Plot 12 KAMPALA ROAD-CHAM TOWERS SUITE 43: call: 0414-580619, 0392-612648

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