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Money Markets: Uganda Shilling Continues to Thrive as BOU Improves Foreign Exchange Supply

For the fourth consecutive trading week, the Ugandan Shilling (Shs) has continued to trade higher than the United States dollar ($).

As of May 15, figures from Bank of Uganda (BOU) indicated that the Shilling was trading at a range of 3785/3795, for buying and selling respectively.

This is a slight improvement compared to the trading range of 3790/3800 at which the Shilling traded during the start of this trading week, according to Stephen Kaboyo, the Executive Director of Alpha Capital Partners.

“The Shilling strengthened slightly on improved foreign exchange supply coupled by BOU Monetary Policy (MOP) operations,” said Kaboyo.

In this trading week, BOU carried out MOP operations that removed from the system Shs 690bn ($182m) through the Sale and Repurchase (REPO) transactions and a deposit auction.

“Government bonds of 3 and 15 years with coupons of 11% and 14.25% amounts of 75 billion and 210 were on tap,” he said adding, “the yields on the 3 and 15 year instruments due 2023 and 2035 remained relatively flat, attracting descent uptake as seen in the bid to cover ratios of 1.430 and 1.507 respectively.”

The Shilling has maintained a range of Shs 10; Kaboyo earlier told ChimpReports that this has been caused by the negative impact of the COVID-19 pandemic on businesses.

“The Shs traded sideways with no distinct trend as market activity remained curtailed due to Covid 19 effects on the broader economy,” said Kaboyo.

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“In the coming trading sessions, the local currency will continue to be sentiment driven with markets taking a wait and see approach as they weigh the prospects of easing the lockdown measures. Trading will likely be confined in a narrow range,” he added.

According to the assessment that was conducted by Alpha Capital Partners in the money markets, in the regional currency markets, the Kenya shillings (KES) which was doing well in the last trading week after being supported by diaspora flows amid weak dollar demand in the local market was affected this week.

The KES was weakened by the negative sentiment after the International Monetary Fund (IMF) raised the Country’s risk of debt distress.

“As a result, the Central Bank intervened by selling unspecified amount of dollars to deal with the volatility,” Kaboyo noted.

The assessment further reveals that the dollar edged up against a basket of its rivals hitting a 3 week high at the close of the week in the global markets.

“The Wall Street was on shaky ground-driven by US Federal Reserve comments dismissing speculation over US interest rates entering the negative territory,” said Kaboyo.

The falling of European stocks for the third consecutive session, sent investors to the relative safety of the green bank, affecting the Euro (£).

 

 

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