Shilling watch: sustained gradual weakening expected

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By Stephen Kaboyo

The Uganda shilling slipped against the dollar undermined by a surge in demand mainly from fuel importers, some corporate players as well as interbank.
Trading was in the range of 3735/3745. In the interbank money market rates held steady with overnight funds priced at 5% while one week was at 9%.

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In the fixed income market, Bank of Uganda held a Treasury bill primary auction, with 205 billion on offer. Yields marginally increased across all tenors to trade at 8.520% 9.274% and 10.282% for 91, 182, and 364 days respectively. The unusually large offer size indicates the government growing need to borrow from the domestic markets.

In the regional currency markets, the Kenya shilling was in a bearish mode on account of end month demand, triggering the Central Bank to intervene by selling dollars. Trading was in the range of 101.00/20.

In international currency markets, the US dollar rally lost steam and the greenback hit a two week low after President Trump scrapped the summit meeting with North Korea. Traders were seen booking profits as markets repriced geopolitical risks.

Forecast for the shilling indicate sustained gradual weakening on the back of the demand from fuel importers as they build positions ahead of the budget reading and pressure from the rise in crude prices.

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