Market watch: Uganda faces upside risks of food and headline inflation amid rising oil prices

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The Uganda Shilling surrendered some ground, undercut by a surge in dollar demand from offshore buyers, oil and merchandise importers.

The unit traded just above the UGX. 3600 key level for most of the trading sessions.

Currency markets In general have not escaped the steep losses and wild swings seen across other asset classes with many facing massive downward pressure.

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In particular , the Kenya shilling weakened to a new record low due to rising global energy prices triggered by the Ukraine war, touching levels of 114.05/25.

In the global markets, the current geopolitical shock is serving as a catalyst to trigger mean reversion where the US dollar will continue to outperform all the major currencies.

The greenback hit a new five year high riding on safe haven sentiment while liquidity in other currencies remained extremely poor leaving room for volatility.

On the economic front,Uganda faces upside risks of food and headline inflation amid rising oil prices and supply chain constraints that will likely impede economic recovery going forward. At the same time this backdrop points to a period of less inward investments due to rising global inflation and energy prices that will result in further deterioration in the trade balance.

In the coming days, the local currency is expected to encounter pockets of volatility as disruption in the emerging markets prevail on account of offshore players deleveraging positions in riskier assets

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