Key Takeaways:

• The Uganda shilling weakened slightly after Christmas, touching intraday lows of 3,625/3,635 before settling at 3,610/3,620.
• Pockets of dollar demand from manufacturers and selling by commodity exporters and remitters pushed the pair lower.
• The central bank absorbed excess liquidity of up to Sh178 billion while interbank overnight and one-week rates averaged 10.27% and 10.47% respectively.
• Market participants expect the Uganda shilling to trade within a near-term range of 3,575–3,625.

Uganda shilling edges lower after Christmas as liquidity is mopped up

The Uganda shilling traded slightly weaker in the session following the Christmas holiday as pockets of dollar demand from manufacturers and other local buyers nudged the currency pair to intraday lows of 3,625/3,635. Traders said the move prompted selling interest from commodity exporters, banks and inward remittances, which helped the shilling recover to close the day at 3,610/3,620.

Uganda shilling outlook

The local unit opened the week around 3,605/3,615 before the dip during the session. Market participants described the offshore community as largely on the sidelines, contributing to a cautiously calm trading environment. Analysts expect the Uganda shilling to trade within a near-term range of 3,575–3,625, barring any large flows or sudden shifts in dollar demand.

Richard Nsubuga, a market analyst, noted that subdued activity from international players has left domestic flows and seasonally driven demand to dictate intraday moves. “Offshore market players have kept on the sidelines amid a cautiously calm market. The shilling is still expected to trade within the range of 3,575–3,625 in the near term,” he said.

Demand for dollars came largely from manufacturers requiring import financing and from corporates settling foreign currency obligations. At the same time, commodity exporters and recipients of inward remittances provided dollar liquidity, creating short-lived swings that tested the currency’s resilience.

Liquidity conditions in money markets were described as ample, according to an Absa market report. Excess liquidity prompted the central bank to undertake mop-up operations totalling up to Sh178 billion. Such operations aim to manage short-term monetary conditions and keep interbank rates within targeted bounds.

Interbank interest rates reflected the central bank’s actions. The overnight and one-week rates averaged 10.27% and 10.47% respectively, signalling a stable short-term funding cost for banks amid the holiday period. These levels are consistent with the central bank’s ongoing efforts to strike a balance between supporting liquidity and containing inflationary pressures.

For importers and exporters, the modest move in the Uganda shilling is notable but not unusual for the season. Manufacturers and import-dependent firms may face slightly higher foreign exchange costs if dollar demand persists, while exporters and remittance recipients provide sporadic relief to the market.

Looking ahead, traders say the main drivers to watch will be sustained dollar demand from corporates, the pattern of remittance inflows and any notable activity by offshore investors. Policy moves by the central bank, including further liquidity absorption or injections, will also shape the shilling’s path in the coming days.

Overall, the post-Christmas session highlighted that the Uganda shilling remains under the influence of both domestic seasonal flows and measured central bank interventions. Short-term price action is likely to remain range-bound unless larger, unexpected flows hit the market.