Shilling outlook: May & June seasonality factors to exert another round of upward pressure

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By Stephen Kaboyo

The Uganda shilling was set to end the week on a weaker tone on elevated demand mainly from the interbank as the effects of end month conversions that had improved supply conditions in the market were wearing off.

Trading was in the range of 3753/63 at close of the week compared to 3740/3750.

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In the money market, overnight funds traded at an average 6% while one week funds traded at 9%.

In other economic news, the annual headline inflation for April rose to 3.5% from 3% in March.

The jump is attributed to annual core which rose to 4.8% in April compared to 4.6% in March.

In regional markets the Kenya shilling strengthened on account of offshore flows targeting the government securities, remittances from the diaspora and horticultural exports flows. Trading was in the range of 101.10/30

In the global markets, the dollar rose against the basket of other currencies following the comments made by the Federal Reserve Chairman that the current policy stance was appropriate and therefore reducing expectations for a rate cut.

The greenback rebounded from earlier losses tied to a disappointing report on US manufacturing activity.

The short term outlook for the shilling indicate a weaker unit with market anticipated demand exceeding the supply.

In the expanded outlook, seasonality factors that tend to weaken the shilling in the months of May and June are likely to kick in and this will exert another round of upward pressure.

It is also expected that external debt service obligations falling due may require BOU to be in the market on the purchase side, an action that will keep the shilling on the back foot.

read: Forecast indicate a bearish shilling on back of declining yields on govt. securities

The writer works with Alpha Capital Forex Bureau: For competitive Forex Rates 12 KAMPALA ROAD: call: 0414-580619, 0392-612648

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