Shilling Strengthens Further, Establishes New Support Level Of 3650

The Uganda shilling strengthened, establishing a new support level of 3650 during the week ending 13^th September 2019.
Market activity was underpinned by low appetite for Forex from commercial banks and importers. The unit was also supported by inflows from offshore investors participation in the treasury bill auction. Trading was in the range of 3657/3667. In the interbank money market, overnight funds quoted at 7% while one week averaged 10%.

In the fixed income segment, 220 billion was on offer for the Treasury bill auction. Yields remained relatively flat at 8.604%,10.555% and 11.630% for 91, 182, 364 days respectively. All tenors were oversubscribed.

In the regional currency markets, the Kenya shilling gained ground, on account of tightening liquidity conditions in the local money market and reduced dollar demand. Trading was in the range of 103.55/75.

In the global markets, the dollar held firm against the major currencies as markets focused on the Federal Reserve likely action at its upcoming meeting where it is widely expected that it would cut rates. Relatedly, President Trump took aim at the Fed, in a tweet stating that the ECB is succeeding in depreciating the Euro against the dollar hurting US exports while the Fed only sits. Also in support of the greenback was the scaled back pessimism about the US- China talks, with growing chances of an interim trade pact coming soon than later.

In the UK, the pound gained 0.3% on the dollar after the British parliament moved to block a no deal exit from EU. However the sterling remained vulnerable over the uncertainty on the terms of exit.

In the Eurozone, the Euro dropped 0.75% after ECB cut its main deposit rate by 10 basis points to -0.5%, a record low, but in line with market expectations. The ECB also relaunched a quantitative easing program to boost the regional economy.

“In the coming week, the Uganda shilling is seen trading in a stable range as mid month corporate tax payments limit the demand for dollars,” says Stephen Kaboyo, an analyst and Managing Director at Alpha Capital Partners.