The Uganda shilling opened the week on a strong note, trading at 3645/3655 against the U.S. dollar. It briefly hit 3640/3650 before stabilizing back at 3645/3655 during the early session.
Continued dollar inflows from the agri-commodity sectors especially coffee and cocoa as well as inward remittances, helped the dollar maintain a bullish stance.
During the week, the exchange rate briefly reached highs of 3628/3638.
Rahmah Masagazi, Head of Sales – Global Markets at Absa Bank Uganda, noted strong market demand from the Energy, Manufacturing, and Telecom sectors, which slightly weakened the shilling, pushing it back into the 3635-3645 range. The unit closed Friday’s session at 3645/3655.
“We still believe the shilling will close the year within the 3630-3700 range, although it could face pressure due to renewed corporate demand from the Energy and Manufacturing sectors,” Masagazi stated.
In other market news, the Bank of Uganda conducted a Treasury Bill auction with Shs 355 billion on offer. However, they only accepted Shs 217 billion of the Shs 483 billion tendered. The auction cleared near par with the previous one, with the 91-day bills clearing at 10.384%, the 182-day at 13.400%, and the 364-day at 15.050%. Long-dated bonds saw continued selling, with the yield curve remaining elevated, particularly in the 10-year, 15-year, and 20-year tenors.
Money markets remained tight, with rates averaging between 11.45% and 11.70%. In the U.S., core PCE inflation is expected to cool in November, though risks of an uptick in December remain a concern for the Federal Reserve. Core inflation’s persistence is one of the reasons the Fed lowered its expectations for rate cuts in 2025 and beyond. On Wednesday, the Federal Reserve lowered its benchmark rate for the third consecutive time to a range of 4.25% – 4.50%.
On the global front, EUR/USD suffered after President-elect Trump suggested the EU needed to buy more oil and gas to balance its deficit with the U.S., threatening tariffs in response. The EU is already a major buyer of U.S. liquefied natural gas, and discussions to purchase more have emerged to avoid tariffs. The EUR traded at $1.0392 on Friday.
Masagazi also observed that the pound dropped following the Bank of England’s decision to leave rates unchanged at 4.75%, though three officials advocated for an immediate rate reduction. The majority of officials maintained their guidance for gradual cuts in 2025, with GBP/USD trading at $1.2509.
In commodities, oil prices saw deeper losses on Thursday as concerns over high borrowing costs affecting demand in the world’s largest economy persisted. Brent Crude futures fell by 0.70%, and prices are expected to average $73 per barrel in 2025, with a potential decline to $70 due to excess supply. On Friday, Brent Crude traded at $72.47.
Meanwhile, gold was on track for a weekly drop, as traders weighed the outlook for interest rates after the Fed’s announcement to slow the pace of rate cuts in 2025. Gold, which had surged 26% this year, stalled since late November due to a stronger dollar. Spot gold traded at $2605 an ounce, 0.4% higher on Friday.
