Uganda shilling gains ground as commercial banks liquidate long dollar positions

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By Stephen Kaboyo

The Uganda shilling gained ground as commercial banks liquidated long dollar positions increasing supply in the market alongside offshore flows targeting the bond auction. Trading was in range of 3663/3673.

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In the interbank money market, overnight funds held at previous week’s level, trading at 6% while one week traded at 9%, indicating stable liquidity conditions in market.

In the fixed income space, yields for the 2 year and 15 year bonds rose to 16.20% and 17.75% respectively. The auction was oversubscribed and the target amount of 220 billion was achieved.

In the regional currency markets, the Kenya shilling held steady amid tight liquidity conditions in the money market on one hand, and decent portfolio flows. Trading was in the range of 100.35/55.

In the international currency markets, the US dollar gained against most major currencies as markets bet that trade war rhetoric and a strong US economy would continue to aid the currency. Trade tensions are seen as beneficial for the greenback.

Outlook for the shilling indicate a stable unit as markets keep an eye on the monetary policy direction from Bank of Uganda at the upcoming policy meeting, where policy makers continue to face a tough option of either maintaining currency stability with tighter monetary policy or support growth with a more accommodative monetary policy stance.

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